Rimage Corp (RIMG)

Rimage Corporation established in 1978 has emerged as a market leader in the field of developing and manufacturing publishing, duplication and printing equipment in the field of digital media.

Sales of digital discs duplication equipment used to contribute as high as 70% of revenue during 2003, but have come down to 54% for the nine-month period ended September 2006. During this time-period recurring revenue contribution, which consists of consumables like ink cartridges, ribbons and maintenance increased. This change in the nature of revenue contribution led to a moderate 2% increase in revenue during the same period as the profit margin from recurring revenue segment is low.

The market is slowly shifting from the U.S and Europe to emerging areas like Asia and South America. In response, the international sales remained static at 33% during the same period and the previous nine-month period ended September 2005. More products are in the anvil, but competition from fellow players like Primera technologies and Microtech system has been increasing.

The shrinking of hardware sales revenue sounds like an alarm for the company. With the demand from emerging markets looking to explode the company seems to be lagging behind. The leadership position that it had in its traditional markets of Europe and the U.S also has been undermined, as seen from the dip in hardware sales. The service segment revenue, which is currently propping up the sales cannot do so for long as the profit margins are too thin and the competition is intense. These internal factors put the company at a disadvantage and it is going to affect the stock price movements in a negative manner.