Color measurement: the color is green.(Company Profile)

The announcement last month of X-Rite's purchase of GretagMacbeth AG brings the number 1 and number 2 players in the color measurement instrumentation market together, creating a dominant company in the market. The color measurement market encompasses sales of colorimeters, color spectrophotometers, spectrocolorimeters and densitometers and, excluding process and nontraditional applications, is valued at over $275 million. The market serves a wide variety of end-user segments, ranging from industrial markets, such as automotive, food, graphics and textiles, to consumer markets, including retail and digital imaging applications. Among the reasons cited by X-Rite and GretagMacbeth for the merger is an improved ability to serve new markets and geographies, as well as grow the total market. And from what color measurement companies told IBO, the opportunities for market growth are abundant, encompassing not only new approaches to color measurement, but new partners, end-users and sample types.

Asked to comment on the effect of the merger on the market in general, X-Rite and GretagMacbeth's two major competitors, Datacolor AG and Konica Minolta, were positive. "We believe the merger is likely to have little effect on the total market in the near term, but may lead to further consolidation among smaller suppliers," said Datacolor President Terry Downes, adding "At Datacolor, we believe the merger provides new opportunities for us as the number 2 company in a growing market."

Craig Johnson, assistant general manager of Konica Minolta Photo Imaging Instrument Systems Division, told IBO, "The strength of the two companies is in the areas of graphic arts and automotive. The merger of these two companies will add value to the customer by reducing the overall number of products in these markets." He also noted, "In addition, the internet-based solutions provided by the three companies will drive the entire industry to higher levels of innovative solutions to a greater number of customers. This will ultimately benefit all customers and industries in a positive manner."

No doubt, the combination of X-Rite and GretagMacbeth will create a powerhouse in the graphic arts markets. Graphic arts account for 42% of X-Rite sales and 62% of GretagMacbeth revenues. But the new company has plans that extend beyond its traditional markets. In a document addressing its customers regarding the merger, X-Rite explained, "The combination offers significant growth potential by enabling us to expand into large, undefined market universes, especially consumer and enterprise color management. In addition, new opportunities in existing and emerging markets, such as home decor, digital photography, printing, cinema and HDVC, are expected to drive future growth." As Datacolor and Konica Minolta told IBO, they also view consumer and enterprise color management as primary market opportunities and ones to which they are already committed.

Headquartered in the US, Datacolor AG is a subsidiary of Eichhof Holding AG. In fiscal 2005, Datacolor posted sales of CHF 78.2 ($63.1 million), for growth of 6.4% in local currency. Serving the photography, design and home theater markets, the company's ColorVision division targets some of the fastest growing markets for color measurement. "Digital imaging is a very fast-growing market where recognition of the need for accurate color reproduction on monitors and prints is driving demand for color measurement products," said Mr. Downes. "In digital imaging, professional and consumer photographers are beginning to use color measurement and management to see and show their work in accurate color. As designers move to more digital workflows, they also need color management to present their designs electronically or in print in the colors they intended."

ColorVision's Spyder digital colorimeter product line includes calibration systems for computer monitors. According to Eichhof Holding AG's annual report, sales of Spyder products grew more than 50% and accounted for 15% of Datacolor sales in fiscal 2005. The company recently introduced the entry-level Spyder2express, costing less than $100. "It offers digital enthusiasts, home users and graphic designers the ability to create studio-quality images on screen," said Mr. Downes. Also aimed at the consumer market is the new SpyderTV. "Last year, we also migrated the Spyder brand into home theater with the introduction of SpyderTV, and subsequently created an entirely new product category for color technology," explained Mr. Downes. The company has also just released SpyderTV PRO for professionals. "This delivers a deeper level of functionality for professionals only, and allows installers and technicians to provide a quick and easy value-added service."

Although the consumer and digital imaging markets are two of the larger markets for Datacolor, the company also participates in industrial markets, offering its SPECTRUM software product and Datacolor spectrophotometers. "Demand for color measurement products is also growing fast in the apparel, home furnishings, and automotive markets where color drives sales and is an indicator of quality," said Mr. Downes. "In the industrial sector, color specification, color communication within the supply chain, and color testing are fast-growing applications that require very accurate, precise instruments to manage the color of end-user products throughout their development and production," he said.

Last year, the company introduced the handheld Datacolor CHECK spectrophotometer. Mr. Downes told IBO, "Datacolor CHECK uses the latest PDA technology to interface with the user and store color information for uploading to IT networks. As a result, it can measure color on any surface, in any setting, for any industry--which means manufacturers can easily confirm that products meet color requirements in production from any location and suppliers and purchasers can quickly verify that products meet color requirements upon delivery." The company also offers Datacolor SELECT for paint retailers.

It is this need for increased productivity and greater quality control by industrial customers on which Konica Minolta is also capitalizing. The Instruments Systems Division of Konica Minolta Photo Imaging products include the CM2600d portable spectrophotometer and CM-3700d benchtop spectrophotometer. According to Mr. Johnson, the growth opportunities for its color measurement products are in the food and plastic markets. "For Konica Minolta the foods, both processed and raw products, and plastic markets have continually shown increased demand."

Lower-cost color-measurement options have enabled the adoption of more accurate color measurement instruments by a wider range of food producers and their suppliers. "Materials for the processing of food products as well as the actual processed food itself has been steadily growing," says Mr. Johnson. Food producers rely on color as an important product differentiator. "Increased corporate awareness of the ability of color to be a differentiating factor in the product selection by the consumer," he adds. In the automotive industry, color also plays the crucial role in defining product quality and differentiation. Thus suppliers such as plastic manufacturers serving the automobile industry must also conform to color specifications.

Product development has also served to increase sales growth in the food market, particularly the use of portable colorimeters and spectrophotometers. "The increased use of portable instrumentation has created the need to move the process of color from the lab or factory to the field. This in turn reduces the time it takes to produce product creating higher throughput and creating greater revenue." The food and other industries also rely on Konica Minolta for product development through specialized applications. "Konica Minolta is developing strategic partnerships for the development of single user and web-based multiuser software systems," says Mr. Johnson.

"The target industries for current product development are in the automotive/transportation, plastic and food markets. In becoming a systems integrator, Konica Minolta can concentrate on its core strength of optical hardware development. The developments include multi-angle and single angle spectrophotometers as well as a lower cost color reader with firmware adaptability which can be configured for any application," he said.

Product development is also focused on advancing the capabilities of color instrumentation. As Mr. Johnson told IBO, "Our long term goals are for the development of surface and optical properties measurement instrumentation." These include the measurement of quality and structure of etched surfaces.

Growth in new geographic areas also appears to be a priority for color measurement companies. Konica Minolta's color measurement products are part of Konica Minolta's Sensing business, which recently announced it plans to establish its own subsidiaries in all major markets outside Japan. "This process is simply a focusing of the business on a global basis toward common customers. As many customers operate on a global basis, the establishment of subsidiaries will increase product awareness of Konica Minolta products in US-based companies operating abroad and vice versa," said Mr. Johnson. Last year, Konica Minolta Europe Instrument Systems Division appointed CHEMTEC to distribute its products in Saudi Arabia and the Gulf States.

Datacolor is expanding production and distribution in Asia, which accounted for 28% of its fiscal 2005 sales. X-Rite and GretagMacbeth noted that their merger will enable the critical mass necessary for the new company to compete more effectively in China and India. Combined, Asia sales would account for 17% of the new company's sales. And last year, GretagMacbeth opened a new office in Moscow, Russia to serve the Commonwealth of Independent States.

Konica Minolta, Datacolor and the new X-Rite/Gretag Macbeth appear to be well positioned to pursue new business opportunities. But as the consolidation indicates, it is likely to take a repositioning of resources to make the most of these opportunities.