Executives
John Gamble - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Paul Rooke - Chief Executive Officer, President and Member of Executive Committee
John Morgan - Director of Investor Relations
Analysts
Benjamin James Bollin
Jeffrey Fidacaro - Susquehanna Financial Group, LLLP
Richard Gardner - Citigroup Inc
Brian Alexander - Raymond James & Associates
Chris Whitmore - Deutsche Bank AG
Ananda Baruah - Brean Murray, Carret & Co., LLC
Bill Shope - J.P. Morgan
Mark Moskowitz - JP Morgan Chase & Co
Scott Craig
Toni Sacconaghi - Bernstein Research
William Fearnley - Janney Montgomery Scott LLC
Katy Huberty - Morgan Stanley
Shannon Cross - Weeden & Co. Research
Lexmark International (LXK) Q4 2010 Earnings Call February 1, 2011 8:30 AM ET
Operator
Thank you for standing by, and welcome to the Lexmark International Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to John Morgan, Lexmark's Director of Investor Relations. Please go ahead, John.
John Morgan
Good morning, and thank you for joining us. President and CEO, Paul Rooke; and EVP and CFO, John Gamble, are with me this morning. After their remarks, we will open the call for your questions as time permits. We ask that you please limit yourself to one question and one follow-up, if needed, so that we can get to everyone.
Please note that Paul and John will both be referring to specific earnings presentation slides. These slides were posted to our Investor Relations website located at lexmark.com earlier this morning. Following the conclusion of this conference call, a complete replay will be made available on our Investor Relations website. Here you will also find details regarding our upcoming events including our participation in the Goldman Sachs Technology and Internet Conference on February 16 in San Francisco. Also, I'd ask you to save the date for Lexmark Securities Analyst Meeting planned for the morning of May 11 at the Crown Plaza, Times Square. Additional details will follow as the date approaches.
Also, as a reminder, any of today’s remarks that are not statements of historical fact are forward-looking statements and involve certain risks and uncertainties that are disclosed in the Safe Harbor Section of our earnings releases and our SEC filings. Actual results may differ materially from such statements, and Lexmark undertakes no obligation to update any forward-looking statements. With that I’ll turn it over to Paul.
Paul Rooke
Thank you, John, and good morning to everyone. As John said, we'll be using a presentation slide deck this time. We'll refer to the slide numbers as we go to keep everyone on the same page. So let's begin.
The fourth quarter of 2010 was a good quarter for Lexmark. Overall, our fourth quarter financial results were better than expected, reflecting good revenue growth, strong earnings growth and strong cash flow, capping off a very good year for Lexmark. So let's start with a look at the full-year results first, and then we'll go into the fourth quarter.
For the full year of 2010, GAAP revenue was $4.2 billion, up 8% year-to-year. GAAP earnings per share were $4.28, up 130% year-to-year.
Now looking at Slide 3, using the non-GAAP number, you can see the key takeaways for the full year of 2010. We had very good revenue growth for the full year at $4.213 billion, up 9% year-to-year. This was driven by a record performance in Laser revenue of $3 billion, up 15% year-to-year. We also expanded our operating margin for the full year to 12.3%, up 3.1 percentage points year-to-year, a meaningful increase for our business. The expansion of our operating margin was driven by our strategy to focus on the higher-usage segments of the output market as well as reductions in costs and expense from our restructuring initiatives. And this, combined with our revenue growth for the year, drove a 45% increase year-to-year in our 2010 operating income.
Earnings per share for the full year were $4.96, an increase of 52% year-to-year, with the majority of the increase coming as a result of our revenue growth and margin expansion. And from a cash perspective, it was another strong year. Net cash from operations was $520 million, up $118 million as we exceeded the $400 million level for the ninth consecutive year.
Now looking at our fourth quarter 2010 results. Our GAAP revenue was $1.104 billion, up 3% year-to-year. GAAP earnings per share for the fourth quarter were $1.10, up 45% year-to-year.
Now on Slide 4. Again using the non-GAAP numbers, you can see the key fourth quarter takeaways. Revenue for the fourth quarter of 2010 was $1.11 billion, up 3% year-to-year, a little better than expected and driven by stronger Laser growth of 8% year-to-year and Perceptive Software revenue of $22 million, which grew 11% sequentially. Our operating margin of 11% was up slightly sequentially but down year-to-year for the fourth quarter, dampened year-to-year by other support costs and expense.
Our earnings per share for the fourth quarter were $1.29, an increase of 11% year-to-year, much better than expected and driven by both good operating performance and some discrete tax benefits that John will cover in more detail in his comments. And from a cash perspective, we had a good quarter. Net cash from operations was $153 million in the quarter. We also made good progress in the fourth quarter reducing our Lexmark days of inventory, back to around the second quarter of '10 level. In fact, we made a 10-day sequential improvement in Lexmark inventory and receivables, partially offset by a reduction in payables for a total sequential cash cycle reduction of two days.
Now Slide 5 helps to put our revenue performance into perspective as compared to our major competitors. Comparing revenue growth rates through the third quarter of 2010 for Lexmark and the key competitors. Our estimates indicate that our growth rate has been about 2x faster than the industry average growth rate.
Now let's move to Slide 6. Last November, we combined our two former Laser and Inkjet divisions, PS&SD and ISD into one group, now called Imaging Solutions and Services or ISS. We did this because there was an increasing amount of commonality between the channels and the customers of the two divisions. Combined, these will now enable us to drive more consistency across our products and across our marketing and sales initiatives with our customers. In other words, the combined ISS is now focused on providing a broader line of products focused on the higher usage segments of the imaging market. The future laser and inkjet products target at these segments will increase in their commonality, while the underlying technology splits will become less meaningful as the relative performance of these technologies change.
Overall, we're focused on driving total hardware revenue growth, independent of technology with the right customer targets to create a growing and productive installed base, which in turn drives total supplies revenue growth and continued strong margins. Additionally our other reporting segment, Perceptive Software, represents our new software business where we are focused on driving more profitable value with our customers. And while it represents a small part of Lexmark revenue today, it will play an increasingly important part of our future plans.
So starting with ISS. ISS revenue of $1.088 billion for the fourth quarter grew 1% driven by strong Laser revenue growth of 8%, offset by a 14% decline in Inkjet revenue. For the full year of 2010, total ISS revenue of $4.162 billion grew 7% driven by strong laser revenue growth of 15%, offset by an 8% reduction in Inkjet revenue.
Now regarding Lasers, we had a record quarter. Our Laser revenue represented about 73% of our total fourth quarter revenue, and we continue to see strong customer demand for our laser products and services, generating strong year-to-year growth in both hardware and supplies revenue.
For the fourth quarter, we achieved double-digit hardware revenue growth and strong supplies growth for lasers. In fact, our workgroup products and MFPs grew over 20% year-to-year on a unit basis in the fourth quarter, continuing to benefit from our product line expansions. For the full year of 2010, we achieved a record performance level for Laser revenue with double-digit growth in both hardware and supplies revenue. We also saw our workgroup products and MFPs grow over 20% on a unit basis, and our Managed Print Services revenue had another great year exceeding 25% growth year-to-year.
And here in the first quarter of 2011, we are rolling out the new color laser platforms announced last October. The 792 and 925 series of high-end workgroup color laser printers and MFPs, featuring our new innovative user interface for superior ease-of-use. We are pleased with the industry awards and recognition for these products to date and believe this will be well received by our customers.
Now regarding Inkjet. Our revenue represented about 25% of our total fourth quarter revenues as we continue to shift the product platforms and channel mix to business customers. For the fourth quarter, Inkjet revenue was up slightly sequentially, but down 14% year-to-year with declines in both hardware and supplies revenue. For Inkjet hardware revenues, the strong growth in high-end inkjet units was more than offset by the continuing decline of low-end devices.
This low-end decline was driven by two things. First, reductions in units to the mass channel as we continued the orderly transition of our channel mix. And second, decisions do not follow aggressive seasonal promotions at the low end of our range since low hardware prices only attract low-usage customers, not aligned with our strategy. On the other hand, we continue to have strong year-to-year growth in the retail sellout of our Professional Series Inkjet units and ongoing strong growth in inkjet sellout revenue in U.S. office superstores helped by our product line improvements over the last year.
Inkjet supplies revenue for the fourth quarter was up slightly sequentially but down year-to-year, reflecting the ongoing shift in units and usage in our inkjet installed base. And here in the first quarter of 2011, we're rolling out the new Lexmark Genesis Inkjet All-in-One announced last quarter, featuring a unique vertical design and our exciting new Flash Scan camera technology. This will roll out to a number of key retailers worldwide. Initial press reviews continue to be very positive here in reinforcing the technology innovation that Lexmark is bringing to the inkjet market.
Now Perceptive Software, our new software segment, generated $22 million in revenue in the fourth quarter, up 11% sequentially with a solid year-to-year increase in license bookings during the quarter. For the full year of 2010, Perceptive Software revenue was $50 million. Just as a reminder, the Perceptive Software acquisition was completed on June 7, 2010, and revenue for the year reflects only the period from June 8 to year end. While Perceptive Software only represents about 2% of our fourth quarter revenue, we expect it to grow faster than the other parts of our business and become a larger share of our mix over time.
Now let me shift from the financials to some other key metrics indicating our progress. On Slide 7. According to our internal analysis, Lexmark continued its leadership position in combined U.S. laser and inkjet awards in 2010, a testament to the strength and innovation of Lexmark's product offerings. Lexmark earned 24% of the awards in 2010, nearly doubling the number of awards earned by our next closest competitor.
Now on Slide 8, you can see an update on our shared gains in key segments. According to IDC data, through the third quarter of 2010, we have continued to gain branded market share in our focused segment of A4 workgroup lasers with a gain of about 150 basis points year-to-year to a share of about 14.5%. In fact, also according to IDC data through the third quarter of 2010, Lexmark is either number one or number two in A4 workgroup laser share in seven of the top 10 country opportunities for A4 workgroup lasers. According to NPD data through the third quarter of '10, Lexmark has also continued to gain inkjet market share in U.S. office superstores, almost doubling our share of OSS or office superstore inkjet units in the above $100 segment to 10%, making us number two in this important OSS segment.
Now over time, Lexmark has also grown a strong presence in the top enterprise customers across a number of key industry segments. And on Slide 9, you can see a summary of our presence across some of the key industries we serve. For example, in retail, Lexmark has 90% of the top 10 global and top 10 U.S. retailers as customers. In the financial services segment, Lexmark has 70% of both the global and U.S. top 10 retail banks' customers. For healthcare, government and education, Lexmark has 30%, 70% and 30% of the top 10 U.S. healthcare, U.S. federal agencies and U.S. K-12 school districts, respectively, as customers.
We also find that once Lexmark establishes its presence, many of these customers also become Managed Print Services customers. In fact, as you see here in the retail and financial services segments, Lexmark has a high percentage of these top 10 customers as MPS or Managed Print Services customers. In fact, 36% of the Fortune 50 companies are Lexmark customers and 24% of the Fortune 50 are Managed Print Services customers of Lexmark. We believe this is a clear indicator that our value proposition here is strong and continues to be relevant with these large discriminating customers.
Now moving to Slide 10. I want to talk about our work with Perceptive Software. Our primary integration focus with Perceptive Software is to leverage Lexmark's global infrastructure and lead-generation capability to accelerate Perceptive's growth. In addition, we're working to integrate Lexmark's and Perceptive's technologies to provide our industry customers with more comprehensive end-to-end workflow and content management solutions.
And in the fourth quarter, we announced the first step towards an integrated hardware and software platform with interact for Lexmark MFPs, a software product that enables customers to easily capture, manage and access key information using Lexmark MFPs integrated into their key workflow processes. We're pleased with this. And overall, our integration plans are on track.
Now moving to Slide 11. We continue to maintain a strong financial position with a solid balance sheet and with $1.2 billion in cash in current marketable securities. As I mentioned earlier, the $520 million of net cash from operations generated in 2010 represents not only our ninth consecutive year in excess of $400 million, but also our 18th consecutive year of positive cash flow.
In summary, these strong results have been driven by our strategy for the core imaging part of Lexmark to focus on the growth of workgroup lasers and business inkjets and have been enhanced by the many actions we've taken over the last several years to fundamentally improve Lexmark. We've expanded and strengthened our laser product line, particularly in color lasers and laser MFPs while strengthening our industry workflow solutions capabilities and advancing our Managed Print Services business.
We've repositioned our Inkjet business to focus on higher-usage business customers with an improved high-end inkjet product line and significantly expand the distribution through office superstores. We've made significant changes in our manufacturing and support infrastructure by consolidating and reducing the number of facilities and increasing our usage of shared service centers in low-cost countries to significantly lower our cost and expense structure.
As a result, while we've made Lexmark a stronger but leaner competitor with an improved capability to compete in the high-usage, higher-value segments of the market. And despite our expense reductions, we've continued to invest significantly in our core print technology and product development and are driving a strong pipeline of future Lexmark products.
Looking forward, in addition to the momentum from our core imaging business, the addition of Perceptive Software allows us to now compete in the fast growing segment of enterprise [ph] content management software and will expand and strenghten our industry workflow solutions capability. Together with our Managed Print Services business, Perceptive will be at the center of a strong growing software and services business at Lexmark. We're also working diligently to take this base and build on it to create a broader, more differentiating strategy for Lexmark's future. We've scheduled an analyst day in May where we plan to share the strategy in more detail.
Now moving to Slide 12. You can see our 2011 outlook. For revenue growth, we expect about 1% year-to-year growth for the first quarter of 2011 and low-single digit growth for the full year. For operating margin, we expect our first quarter of '11 operating margin to be up sequentially with the full year operating margin for 2011 remaining strong, about the same as the full year 2010 operating margin of 12.3%. We've been making steady progress here coming from an operating margin of 7.5% in 2007, 8.2% in 2008, 9.2% in 2009 and 12.3% last year.
For earnings per share, we expect GAAP earnings per share for the first quarter of 2011 to be in the range of $1.08 to $1.18 and earnings per share for the first quarter, excluding restructuring and acquisition-related adjustments to be in the range of $1.18 to $1.28. I'll now turn it over to John Gamble for his more detailed comments on our financials.
John Gamble
Thanks, Paul. Consistent with previous calls, I'll discuss our results of the fourth quarter of 2010 relative to the prior year and relative to the third quarter of 2010. Next, I'll indicate our full year results. I'll then discuss selected changes on the balance sheet and certain items of cash flow. Finally, I'll finish with more detail regarding our guidance for the first quarter of 2011, full year 2011 and our assumptions for the longer term.
As Paul indicated, the company has combined its two printing organizations, the Printing Solutions and Services division and the Imaging Solutions division into a single organization named Imaging Solutions and Services. Segment reporting provided in Lexmark public financial statements now includes the reportable segments of Imaging Solutions and Services and Perceptive Software as well as in other category that includes shared costs and expenses including IT, finance, HR, legal and occupancy and some others.
First, some general comments on 2010. 2010 was a very successful year for Lexmark, and we executed very well on critical strategic and operational goals. Strategically, as Paul Rooke discussed, we grew workgroup, laser printer and MFP revenue in units and market share, including significantly growing our Managed Print Services business worldwide and our solutions capabilities. We are now number one or number two in A4 workgroup unit share in some of the seven of the world's top 10 countries. We are also executing the strategic shift of our inkjet product line to focus on higher price and usage business segments, and are seeing consistent growth in units and share in these high-end placements.
The result of both of the above in 2010, and we believe going forward for 2011, is growing supplies revenue. Our product line is the best in our history and we believe the best in the industry, both in terms of hardware but critically in terms of software, solutions and service capabilities. And we have the awards that show it. We added Perceptive Software, which both allows us to grow a solutions-focused ECM business and strengthen our core solutions offerings. Our restructurings of the past four years are principally completed, significantly reducing supply chain and support costs as well as refocusing R&D and M&S with all of these being done while we replace core IT systems to provide the capability to drive further productivity improvements going forward. There were certainly some hiccups during the year, such as inventory levels in 3Q, but as we showed with inventory improvements in 4Q '10, we are able to respond and recover these issues quickly.
Now let me begin with the P&L. I will start by providing our fourth quarter and full year GAAP results. Fourth quarter gap revenue was $1.104 billion. Gross profit was $393 million. Gross profit margin percent was 35.6%. Operating expense was $292 million. Operating income was $102 million. Net earnings were $88 million, an increase of 46% year-on-year and earnings per share were $1.10. Full year 2010 gap revenue was $4.2 billion. Gross profit was $1.519 billion. Gross profit margin percent was 36.2%. Operating expense was $1.073 billion. Operating income was $447 million. Net earnings were $340 million, an increase of 133% year-on-year. And earnings per share were $4.28. The discussion that follows is on a non-GAAP basis and reflects non-GAAP adjustments unless otherwise noted.
Non-GAAP adjustments in 4Q '10 were acquisition-related revenue adjustments of $6 million and pretax income adjustments of $20 million. The non-GAAP pretax income adjustments of $20 million in 4Q '10 were comprised of $12 million for acquisition-related adjustments and $8 million for restructuring-related adjustments. Non-GAAP adjustments for calendar year 2010 were acquisition-related revenue adjustments of $13 million and total pretax income adjustments of $71 million. The non-GAAP pretax income adjustments of $71 million in 2010 were comprised of $32 million for acquisition-related adjustment and $39 million for restructuring related adjustments.
As a reminder, included in the slide deck posted to the Investor Relations sector of the lexmark.com website, our schedule detailing the non-GAAP adjustments and reconciliation of GAAP and non-GAAP measures.
As shown on Slide 13 of the earnings presentation slide deck, non-GAAP total revenue for the quarter was $1.11 billion, up 3% compared to last year. Up 8% sequentially from 3Q. This is the fourth consecutive quarter of solid revenue growth for Lexmark.
Hardware revenue in the fourth quarter increased 3% year-to-year and increased 9% sequentially as laser hardware saw double-digit growth, partially offset by lower inkjet hardware, reflecting our exit of lower-priced hardware in channels during 2010. Supplies revenue in the fourth quarter increased 1% versus 4Q '09. Again, reflecting good growth in laser supplies revenue, partially offset by declines in inkjet supplies revenue. Software and other revenue, which consists principally of hardware spare parts and related service revenue as well as software license subscription, professional service and maintenance revenue was up 53% year-to-year, reflecting the addition of Perceptive Software in 2Q '10.
The currency impact on Lexmark revenue in 4Q '10 versus 3Q '10 was positive, approximately 2%. And the currency impact on Lexmark revenue from 4Q '10 versus 4Q '09 was negative, approximately 1%. Versus our expectation at the time we provided our financial guidance in October, which was based on the exchange rate as of 09/30/10, the impact of currency on revenue was relatively flat.
Non-GAAP total revenue for calendar year 2010 was $4.213 billion, up 9% compared to last year. Hardware revenue grew 13% to $1.062 billion and supplies revenue of $2.915 billion grew 6% versus 2009. The good growth in both hardware and supplies revenue reflected very strong laser growth, partially offset by declines in inkjet. Software and other revenue of $236 million grew 25%, reflecting the addition of Perceptive Software. The currency impact on Lexmark revenue in 2010 versus 2009 was approximately flat.
For 2010, Dell was a 10% customer. Slide 14 provides more detail on our laser and inkjet hardware revenue performance. Laser hardware revenue increased 11% versus 4Q '09. Laser hardware units increased 4% in the fourth quarter versus the prior year, with over 20% year-to-year growth in workgroup lasers and laser MFPs. Laser hardware average unit revenue increased 7% year-to-year in the fourth quarter, driven by the positive shift related to workgroup and MFP products. Inkjet hardware revenue declined 21% in fourth quarter versus the prior year. Inkjet hardware units decreased 30% year-to-year in the fourth quarter.
Similar to the third quarter, we saw double-digit growth in the fourth quarter in high-end, business-focused inkjets. However, this increase was more than offset by a large reduction in low-end inkjets as we continued our exit of the segment, including the reduction of our mass consumer channel distribution that occurred in the second half of 2010. Inkjet hardware AUR in the quarter increased 13% versus the prior year, reflecting the positive mix shift in the product line. Laser hardware revenue for 2010 increased 23% versus 2009. Laser hardware units increased 8% to 1.7 million units, driven by strong double-digit growth in workgroup lasers and laser MFPs. Laser hardware AUR increased 14%, reflecting the very strong workgroup performance. Inkjet hardware revenue for 2010 declined 11% and inkjet units declined 23% to 3.2 million units versus 2009.
As we have seen throughout 2010, we had strong double-digit growth in high-end, business-focused inkjets. With this growth more than offset by declines in low-end devices as we exited that segment. Full year 2010 inkjet AUR was up 15% compared to 2009 due to this positive mix shift.
Moving to Slide 15 in your deck. Geographically for the fourth quarter, U.S. revenue of $472 million grew about 6%. EMEA revenue of $398 million declined about 2% and the remaining geographies grew about 8% year-over-year. Geographically for the full year of 2010, revenue in the U.S. was $1.804 billion, an increase of approximately 8%. EMEA revenue of $1.510 billion increased about 4% and the remaining geographies increased a very strong 19%. Our strategic focus on government and enterprise customers and delivering best-in-class solutions capability in Management Print Services that provide ongoing page and cost reductions for our customers, has been very successful in Latin America and Asia-Pacific regions, allowing us to deliver ongoing growth in these regions.
As shown on Slide 16, gross profit margin for 4Q was 36.5%, down 40 basis points versus 4Q '09 and flat sequentially. The 40 basis point decline versus 4Q '09 was due to declines in product margins as well as the negative mix. Non-GAAP gross profit margin for the year was 37.0%, up 190 basis points from 2009. The increase was due to improved product margins in hardware and supplies.
Non-GAAP operating expense for the quarter was $283 million, an increase of $23 million versus 4Q '09 and $21 million sequentially. The majority of the increase versus 4Q '09 was due to the Perceptive acquisition, impacting both R&D and SG&A. R&D was up $3 million year-to-year to $97 million, as expense savings from our 2009 and '10 restructurings were more than offset by added Perceptive R&D. SG&A increased $19 million versus 4Q '09 to $187 million, principally due to the addition of Perceptive SG&A as well as higher commission and incentive compensation expense due to our strong laser performance in 2010 as well as increased demand generation spending, which more than offset the benefits of our restructuring.
Sequentially, the increase was in both R&D of $5 million and SG&A of $16 million. The sequential R&D increase was principally programmed timing. The SG&A increase reflects increased demand generation expense, currency and higher support expense, principally compensation and ERP related IT expense. As we look to 1Q '11, we expect operating expense declined from 4Q '10 as much of the sequential increase we saw in 4Q was related to specific programmed timing in R&D and IT, and high variable compensation expense in SG&A in 2010.
Non-GAAP operating expense for the year was $1.041 billion, up $37 million or 4% from 2009. The significant majority of this increase was driven by the addition of Perceptive Software in June. R&D expense of $369 million decreased $6 million as the benefits of the restructurings we executed in 2009 and '10 were partially offset by the addition of Perceptive Software and higher results-based compensation. SG&A was $672 million, an increase of $43 million from 2009. This increase principally reflects the addition of Perceptive Software and higher results-based compensation, partially offset by the benefits of the restructuring we executed in 2009 and '10.
Operating expense as a percent of sales declined to 24.7% in 2010 from 25.9% in 2009. Non-GAAP operating income in 4Q '10 was $122 million, down $14 million from 4Q '09 and up $9 million sequentially from 3Q '10. The decrease versus 4Q '09 was primarily due to increased other cost and expense, which I will discuss in a moment. The increase sequentially was due to higher ISS and Perceptive Software operating income, partially offset by increased other cost and expense.
Operating income for the year was $518 million, up $160 million compared to 2009. This increase was driven by a 30% increase in ISS operating income. ISS segment non-GAAP operating income in 4Q '10 of $193 million was down $8 million versus last year and up $17 million sequentially. The reduction versus 4Q '09 was principally due to increased operating expense, reflecting increased compensation and some demand generation as I referenced earlier. The increase versus 3Q '10 is driven by higher supplies revenue. ISS segment operating income for the year was $774 million, up $178 million compared to 2009. This significant increase was driven by improved product margins and significant growth in supplies revenue.
Perceptive Software segment non-GAAP operating income in 4Q '10 was $4 million and increased $3 million sequentially. Year-to-date since the acquisition of Perceptive Software, operating income was $9 million. Other consists of shared support costs and expenses primarily G&A including IT, finance, HR, legal and occupancy. In 4Q '10, other non-GAAP operating income was negative $75 million. This was $11 million unfavorable to 4Q '09 and $10 million unfavorable sequentially. In both cases, this was driven primarily by the more negative transaction effect from the impact of movements in foreign currencies as well as higher expense, principally compensation and IT expense related to our ERP implementation.
For 2010, other non-GAAP operating income was negative $265 million. $26 million unfavorable to 2009, principally due to higher results-based compensation due to our much stronger results in 2010 and to a lesser extent the more negative transaction effect from the impact of movements in foreign currencies. We have made very good progress over the past four years in reducing other costs and expenses, delivering an over $100 million reduction since 2006. We continue to execute plans to make these functions more efficient. As we look at 1Q '11, we do not expect many of the items that impacted 4Q '10 to recur. And for 1Q '11, other cost and expense to be more consistent with the levels seen in 2Q and 3Q 10.
Non-GAAP operating income margin in 4Q was 11.0%, a decrease of 160 basis points from the fourth quarter of 2009 and consistent sequentially. The majority of this reduction from 4Q '09 is due to the higher other cost and expenses, which I just discussed, which we do not expect to recur. Sequentially, improved margins in the business segments were also offset by the higher other costs. Operating income margin for the year was 12.3%, up 310 basis points versus '09.
Concerning financing and non-operating costs. In the fourth quarter of 2010, the net interest and other was an expense of $6 million, down from $8 million net expense in the fourth quarter of '09 and flat with the third quarter 2010. Full year 2010 interest in other was an expense of $25.5 million compared to expense of $29.1 million in 2009, due primarily to lower interest income. Our effective tax rate for calendar year 2010 was 19.3%, lower than the 23% we had expected.
In 4Q '10 the U.S. Research and Experimentation tax credit was reinstated for both 2010 and 2011, resulting in a $6.5 million or $0.08 per share benefit to Lexmark in 4Q '10 and 2010. Also, in the quarter, we had favorable resolution of other discrete tax items. Our tax rate for 4Q '10 was 8.3%, reflecting the lower tax expense that was booked in 4Q '10 to allow the full year tax rate to be 19.3%. Excluding discrete items, our 2010 effective tax rate was 22.8%. As we look to 2011, we expect our effective tax rate, excluding discrete items, to be consistent with this level at approximately 23%.
Non-GAAP net earnings for the quarter were $103 million. 4Q '09 net earnings were $92 million. And full year net earnings were $395 million. Non-GAAP earnings per share for the quarter were $1.29. This compares to 4Q '09 earnings per share of $1.16. For comparison purposes, had our effective tax rate in 4Q '10 been equal to the 2010 full year effective tax rate of 22.8%, our 4Q '10 EPS would have been $1.12.
Non-GAAP earnings per share for the year were $4.96. This compares to full year 2009 earnings per share of $3.26. With regards to our announced restructurings, we continue to expect the overall costs and savings generated from the restructuring programs announced in April and October 2009 to be approximately the same as discussed last quarter. The April '09 program was principally completed in 3Q '10. The October '09 restructuring program is expected to be principally completed in the first half of 2011.
In 4Q '10, restructuring cash outflow was $17 million and savings from our 2007, '08 and '09 restructuring actions were $66 million.
Now moving to the balance sheet and cash flow items. My comments on the balance sheet, cash flow and cash conversion cycle are based on GAAP results and refer to Slide 17. Cash flow from operations for the quarter was $153 million compared to $257 million in 4Q '09 and $130 million in 3Q '10. Since the end of September 2010, accounts receivable increased $14 million. Inventory decreased to $26 million. Accounts payable decreased to $12 million. And accrued liabilities decreased $4 million. In 4Q '10, we saw a two-day improvement in our cash cycle performance driven by our decreased inventory and improved receivables performance.
We made significant progress in improving inventory in 4Q '10, improving net inventory levels in both hardware and supplies as well as bringing days of inventories to about 2Q '10 levels. We remain focused on inventory performance. Payable days in dollars declined in 4Q from 3Q, reflecting the lower production levels executed to improve inventory.
For the quarter, capital spending was $53 million. Depreciation in the quarter was $54 million. Cash flow from operations for 2010 was $520 million, up $118 million compared to 2009. Since December 31, 2009, accounts receivable increased to $55 million. Inventory increased $9 million. Accounts payable increased to $25 million. And accrued liabilities increased to $29 million. 2010 capital spending was $161 million. Cash cycle at year-end 2010 remained very good at 18 days on a GAAP basis. We remain focused on improving cash cycle in 2011 and beyond.
Depreciation in the year was $198 million and includes $6 million of restructuring-related accelerated depreciation. Free cash flow for 2010 was $365 million. Cash and current marketable securities at the end of 4Q '10 was $1.2 billion, the large majority of which is outside the U.S. and was up $98 million since September of 2010, driven by operating results. Total long-term debt at the end of 4Q '10 remained at $650 million with maturities on the debt in 2013 and 2018. At quarter end, we had $491 million of share repurchase authority outstanding. No shares were repurchased in the quarter.
Now for my forward-looking comments on 1Q '11, please refer to Slide 18. We expect first quarter GAAP and non-GAAP revenue to be up slightly versus 1Q '10 with growth of about 1%. GAAP EPS in 1Q '11 is expected to be $1.08 to $1.18 per share. GAAP EPS in 1Q '10 was $1.20 per share. In 1Q '11, non-GAAP adjustments to revenue are expected to be $2 million and to EPS are expected to be $0.10, comprised of acquisition-related adjustments of $0.07 per share and restructuring-related adjustments of approximately $0.03 per share.
Non-GAAP 1Q '11 EPS is expected to be $1.18 to $1.28 per share. Non-GAAP EPS in the first quarter of 2010 was $1.35 per share. Our 1Q '11 sequential revenue growth, expected to be about negative 5%, we believe reflects continued good performance. This is significantly stronger than our average sequential trends of a high-single digit decline, but this is slightly below our 1Q '10 sequential revenue growth of minus 3%. 1Q '10 revenue growth, both sequentially and year-to-year, was relatively very strong particularly in supplies. The lower year-to-year growth in 1Q '11 relative to 4Q '10 reflects this very strong 1Q '10.
1Q '11 non-GAAP EPS is expected to be below 1Q '10, principally due to unfavorable other cost and expense in 1Q '11 as compared to 1Q '10. The $56 million level in cost and expense in 1Q '10 was quite low relative to other quarters in both 2009 and 2010. This was due to a positive transaction effect from the impact of movements in foreign currencies, which we do not expect to recur, as well as low relative levels of variable compensation.
The income statement guidance provided is on a non-GAAP basis. This guidance is based on foreign currency exchange rates as of 12/31/10. In the first quarter, we expect the gross profit margin percentage to be up versus the 36.5% we achieved in 4Q '10. Operating expense is expected to be down from the $283 million incurred in 4Q '10. Operating income margin in the first quarter is expected to be above the 11% achieved in the fourth quarter of 2010. For 1Q 2011 and all of 2011, we expect our ongoing effective tax rate to be about 23% before discrete items.
Regarding our expectations for the 2011 calendar year, please refer to Slide 19. In 2011, we expect low-single digit percentage year-on-year growth in non-GAAP revenue versus 2010. Laser hardware should continue to perform well with good momentum in workgroup lasers, laser MFPs and MPS. Perceptive Software is also expected to see growth in the year. Non-GAAP operating income margin is expected to be about the same as of 12.3% we delivered in 2010. At foreign exchange rates as of 12/31/10, the currency impact on revenue in 1Q '11 versus 4Q '10 is expected to be flat. The currency impact on revenue of 1Q '11 versus 1Q '10 is also expected to be about flat. We project full year 2011 capital spending to be approximately $190 million. And we expect full year depreciation to be approximately $195 million.
With that, we'll go ahead and open it up for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question is coming from the line of Bill Shope of Goldman Sachs.
Bill Shope - J.P. Morgan
Can you give us an update in terms of what you're seeing in terms of the channel dynamics for both inkjet and laser supplies? And would you say from what you're seeing that we're now firmly at normalized inventory levels? And I guess off of that, what are you seeing in terms of the sell-through dynamics as well?
Paul Rooke
I think from a channel perspective everything looks okay, from our perspective in supplies. Certainly, we continue to focus on that, but we don't see anything abnormal out there in terms of channel.
Bill Shope - J.P. Morgan
So you would say that we're at normalized levels at current supply levels?
Paul Rooke
Yes.
Operator
Your next question is coming from the line of Toni Sacconaghi of Sanford Bernstein.
Toni Sacconaghi - Bernstein Research
I was wondering if you could first comment on what you think about the longer-term growth rate for the industry? I think last year in your analyst day, you said it was low-single digits. Paul Curlander at your conference said it was mid-single digits. Organically, you're guiding for actually slightly negative growth in Q1. So I wanted to get your read on what you think normalized revenue growth rate is for the addressable markets?
Paul Rooke
Toni, I think, if you look at our Imaging business, I think you are in those low- to mid-single digits for the imaging market. Our Software segment, if you look at that piece in the ECM market, certainly it's higher growth rates there. I think IDC would peg it somewhere between 10% and 15%. So those are kind of the relative pieces of our business as you look at ISS and the Perceptive Software. So our outlook here for full year '11 was in the low-single digit range there. And we're going to be very focused on driving the core pieces of our business with the hardware revenue growth, with our workgroup laser and business inkjets supplies. We've had strong growth here in 2010, which we think will help our installed base, certainly, and continue to grow supplies within the software piece in line of a full year Perceptive. And we've got some strong growth initiatives that we're pursuing on Perceptive. So all of that together, we've given the guidance of low-single digits.
Toni Sacconaghi - Bernstein Research
I was hoping you could comment on OpEx. It's still and about the 24% range. Historically, you're around 21% including options expense maybe 21%, 21.5% at similar kinds of revenue levels. So I guess the question is, why is OpEx structurally higher than it was historically? And now that your restructuring is largely complete, should we be expecting OpEx on an ongoing basis to be about this level or are there other opportunities for it to be lower?
Paul Rooke
Let's turn that one to John.
John Gamble
In terms of our total OpEx levels, the structure of the company is a little different that it was historically and we have a slightly different business mix. So we think we have done quite a bit to improve our OpEx structure, and you've seen that over the past several years. And you've seen us bring it down quite substantially, I think, on a percentage of revenue over the past several years. And also we've taken it down significantly in terms of dollars. As we look forward, we're going to continue to try to focus on ways that we can improve the support structure of the company. But we will likely make some investments to continue to make sure that we can participate properly in R&D and in SG&A. We haven't given specific OpEx guidance for 2011. But in general, I think what we would expect is that you should see, as a percentage of sales, OpEx to be flat to down.
Operator
Your next question is coming from the line of Shannon Cross of Cross Research.
Shannon Cross - Weeden & Co. Research
I was wondering if you talk a bit about the Inkjet business in terms of the continued declines? When do you expect that to sort of mitigate and we can anniversary getting out of some of the lower profitable channel?
Paul Rooke
Shannon, let me talk about the Inkjet business, kind of where we are in this whole shift and transition of that business. First and foremost, let me remind you that we're focused on pages, not units. So the whole idea with our Inkjet business is to advance the technology to get to higher levels of performance in terms of the platforms and the products that we deliver, and targeted through channels that serve business markets. Now what you're seeing in some of the reduction year-to-year, as we shift the technology, shift the platforms, we're seeing the channel shift along with it as we change that whole marketing mix, if you will, of Inkjet business. So some of the declines are coming from, as we're reducing our mass distribution, distribution to the mass channel. Some of that happened there in the second half of 2010, so you're seeing some larger declines here in the second half, third and fourth quarter. And we expect that to continue here through by the first half of 2011 until we kind of lap that. But that's all driven really with our focus going forward, which is moving our product line up. And as you move that product line up in some of the channels that we historically served, will diminish. And those that we will be serving will grow as you see in, for example, the OSS channel continues to grow quite nicely for us.
Shannon Cross - Weeden & Co. Research
And then just a follow-up question on the supplies growth for first quarter. I don't know, John, if you can you provide a little more detail on what you're expecting. Clearly, you're lapping a pretty tough comp, so I'm curious as to what your expectations are on supplies?
John Gamble
We didn't give a specific number for supplies. But as we talked about, we think sequentially the level of growth we're talking about at minus 5%, we think is pretty good. And although last year, it was obviously very strong at minus 3%, particularly in supplies. We're comfortable that the level of sequential performance we're showing is fairly good.
Operator
Your next question is coming from the line of Brian Alexander with Raymond James.
Brian Alexander - Raymond James & Associates
If I do the math on your first quarter guidance, it suggests your assuming operating margins are going to be around 12.3% to 12.5% to get to the midpoint of your earnings guidance. You also mentioned you expect full year operating margins to be around 12.3%. If I looked historically, your hardware mix goes up throughout the year, which causes your operating margins to go down. And your full year margins are typically below your first quarter margins by a lot more than 20 to 30 basis points. So it looks like this year, you're expecting to buff that trend, and I was wondering if you could explain why that's the case? Are you expecting more balanced growth in supplies and hardware as we move throughout the year? Is this a function of Perceptive accelerating or is there something else going on in the business model?
Paul Rooke
I think, Brian, as we look at 2010, there were some interesting dynamics. In the first half, as you recall, we had constraints on hardware so our hardware mix was a little richer. But in terms of supplies to hardware, we had a lower hardware supplies mix in the first half, which drove margins up in the second half. As you started shipping fuller line of hardware, if you will, as the constraints went away then it was dampened as you saw. We also had some things that happened here, as John pointed out earlier in the fourth quarter, with some timing of spend and some other support things that shouldn't recur. But I think the way to think about it as we go through 2011, is it will be a tighter band, if you will, instead of a low of 11 to a high of 14 and maybe tighter during the year. And we're going to be working on things across our line to tighten that band, if you will, and make sure it's more of an even swing. Because we'll have, hopefully, more consistent supply through the year and we're going to continue to drive supplies as you point out, which will help. We'll continue to work on cost and expense on the hardware side. And Perceptive, we're going to continue to grow Perceptive and the margins are quite good in the software business, as you point out.
Brian Alexander - Raymond James & Associates
So just underneath your 2011 outlook, the flat margins, can you just be a little bit more specific on hardware versus supplies growth? Are you expecting hardware growth to outpace supplies or vice versa? And then within hardware, where do you expect to see relative strength?
John Gamble
In terms of 2011 guidance, I think we've given as much as we're going to give. But suffice it to say, I think we feel good about the level of growth we can deliver in 2011 and obviously we're working very hard, as Paul said, to make sure we're able to maintain the strong margins that we worked so hard to get to in 2010.
Operator
Your next question comes the line of Scott Craig of Bank of America Merrill Lynch.
Scott Craig
With regards to some of the focused areas for growth, the workgroup laser and laser MFPs and high-end inkjet, you talked about the third quarter year-to-date market share that you thought you gained. Can you maybe provide a little bit of color on the fourth quarter and whether you expect to have gained share in all of your focus segments? And then secondly on Best Buy, I know it's early still, but are we seeing any different attached rates for consumables from the buying patterns on a sellout basis so far versus perhaps what you've seen historically there and maybe in the retail channel in general?
Paul Rooke
Scott, in terms of the fourth quarter, we don't have the numbers. They'll come out here in another few weeks. But I think -- well, we could say is our growth in the fourth quarter, in those target segments was quite strong. As we pointed out our workgroup lasers were 20-plus percent. Our business inkjets were double digit. So I think that we should see good numbers there, but we'll see when all the numbers come out. In terms of Best Buy, just to remind everybody, we put some products in there in the fourth quarter, a range of products from $99 to $2.99, and so we have started our sell-through there. I'd say it's too early to really get a read on our supply detached rates, better or worse, historically or versus other channels and so forth. But we're pleased so far with what we're seeing in Best Buy. We're working on improving the hardware mix there. The Genesis product, which we announced last quarter, we were just ramping up so we didn't have real enough supply in the fourth quarter to supply the stores. And now those are rolling out here in the first quarter and that will help shift our mix even more because that product is priced at $3.99. So all in all, we feel good about Best Buy but I think it's too early to make a call on the attach rate.
Operator
Your next question is coming from the line of Katie Huberty of Morgan Stanley.
Katy Huberty - Morgan Stanley
Paul, it looks like laser supplies growth decelerated in the fourth quarter versus the growth rate for the full year, despite the increased hardware placement over the course of really the last 18 months. Why is this the trend and when do you think we can see laser supplies growth reaccelerate again?
Paul Rooke
Certainly the first half were easier compares for us. And when you look at our business in the back half of '09, it started to come back particularly in the fourth quarter and first quarter as the business came back and the consumption increased, entry stocks increased, all that increased. And we're facing some tougher compares. What I would say is we do believe the laser installed base is healthy and improving. And we do expect to see laser supplies growth continue and time will tell the degree of increase that will be. But we feel pretty good about our laser businesses. As we pointed out we had record quarter here and a record year for the Laser business in 2010. And the bar is set again for us for 2011, obviously.
Katy Huberty - Morgan Stanley
And then just a quick follow-up for John. CapEx is up 15% to 20% in 2011 despite shutting down the facilities over the last few years. Where are those investments going in 2011?
John Gamble
If you look over the past several years you'll see 2010 was quite low relative to some prior years. And I think we're kind of returning to a level that is a little closer to normal, right? When we talk about long term, we talk about CapEx probably being something similar to depreciation. And generally, what drives our spending is just program timing. It's just the timing of when new products will roll out and the CapEx tends to occur six to nine months ahead of the roll out of the product. So it's just really program timing and our new product launch schedules, and that's really all that's driving it.
Operator
Your next question is coming from the line of Ananda Baruah of Brean Murray.
Ananda Baruah - Brean Murray, Carret & Co., LLC
I guess on Managed Print Services, I think you guys commented that MPS was up 25% year-over-year. Can you give us a little bit more detail about what is included in that? Does that include, I guess, in the hardware and supplies? And then can you give us any insight into sort of maybe what percentage of revenue or what the revenue is for MPS? And I guess maybe what percent of the overall laser businesses it drives now? It would be helpful.
Paul Rooke
The MPS value proposition, Managed Print Services value proposition continues to be strong for us and it was actually greater than 25% in terms of its growth rate. It does include hardware supplies and services. It's another way of buying, if you will. The combined elements of that. We don't break out the percent of our business, what percent MPS is of our business. But it's still a minority of our business, but it is a strong value proposition. As we pointed out in our presentation, our presence over time has grown and established a very good presence in many of the top customers. And what we're finding is that the Managed Print Services proposition makes it even stronger, stickier, if you will, as we add more value with our customers. So we're pleased with our MPS progress and you'll see that continue.
Operator
Your next question is coming from the line of Bill Fearnley of Janney Capital Market.
William Fearnley - Janney Montgomery Scott LLC
Could you guys give some more color on the gives and takes on the gross margin line? It was better than expected this quarter and it looks better than expected here for the upcoming fiscal year. And in addition, I'll ask the follow-up now, how do you see the promotional pricing environment, especially in hardware? And what's the effect there in the gross margin line as well?
John Gamble
It's a long term. What's driving the improvement in our gross margin line, as what Paul has been talking about is the strategic goals. So we've been focused very hard on driving workgroup or high-end laser product and MFPs, and those tend to carry better margins than low-end product. And we're very focused on driving high-end Inkjets. And both the high-end inkjets and the workgroup laser and MFPs and obviously color MFPs drive much better supplies utilization, which long term has been improving our supplies mix. And those are the three factors that really continue to drive our margins and what we need to continue to drive to have the margins perform well going forward.
William Fearnley - Janney Montgomery Scott LLC
How are you seeing the pricing environment here as you gear up for the upcoming fiscal year and people look at their budgets again, are there any concerns on the pricing environment changing as more competitors focus on these same segments as well?
Paul Rooke
Bill, I think from a pricing environment perspective, we don't see a lot of change there. It's already aggressive. And whether you talk about the enterprise deals that are bid on periodically, those have been aggressive, continue to be aggressive and I think will be aggressive because they're large installed bases that competitors are fighting for. Down in the more transactional spaces, you get the seasonal periods. And then we saw a lot of low prices and heavy promotions here in these past fourth quarter. We chose to mention in our comments not to chase down those things, particularly at the low end of our line because they're just our history, and information would say low price equals low usage, and so we've tried to avoid chasing those things. So I think the promotional environments will continue to be quite similar and we're targeting our spots, if you will.
Operator
Our next question is coming from the line of Richard Gardner of Citi.
Richard Gardner - Citigroup Inc
I'd like to follow up on Brian's earlier question regarding operating margin. For 2011, you're guiding flat despite the fact that there appear to be a number of continuing benefits for operating margin this year including the fact that the mix continues to shift toward the new inkjet architecture, which has lower product costs and hopefully is generating higher ink usage for installed device. You continue to shift your laser mix toward MFP and laser. You're gaining share in the most profitable segments of the markets for your comments. And then you've suggested, John, that there are additional reductions and support costs coming this year, so I guess I'm just curious why you think that operating margins will be flat year-over-year in 2011.
John Gamble
So we think directionally, a lot of the things we've quoted are effectively what Paul's been talking about through his discussion. And we certainly agree that's correct, but when roll that together and we take a look at the pricing in the industry, it was also a reference. That's where we kind of shake out because we believe that the margin will be approximately flat as we look forward in 2011 versus 2010 as we sit here today. So we expect to continue to drive workgroup. We expect to continue to drive high-end inkjet. Our expectation is that we'll drive supplies. But based on where we sit right now, all in all we think we're looking at approximately flat margins.
Richard Gardner - Citigroup Inc
John, did I hear you say earlier that you we're hoping for operating expenses as a percent of revenue to be down year-over-year in 2011?
John Gamble
We indicated flat to down.
Jeffrey Fidacaro - Susquehanna Financial Group, LLLP
And then on Inkjet, I was just hoping -- I know Paul you've suggested that it's a little bit early to tell what usage looks like through the Best Buy channel, but could you talk just generally about how you feel about ink usage for installed device for the new inkjet architecture now that you've had the product in the market for more than a year?
Paul Rooke
I think, overall, we see as we move the product line move up in terms of performance and price point, we do see higher usages on those products than historically are lower priced. So it's really a question of getting the mix continued to shift up and actually bring more higher-performance engines down the road. And so all those things then will settle out, ultimately, in the installed base and hopefully get it turned around on a growth path again. But what you're still seeing in the installed base is more coming out than what's going in, in terms of pages, and as I indicated with the supplies revenue. And we're working hard, believe me, on getting that turned around. But I think it's all about getting that mix. Selling the right mix of things in on a consistent and growing basis. And then we'll see where it comes out.
Operator
Your next question comes from Mark Moskowitz of JPMorgan.
Mark Moskowitz - JP Morgan Chase & Co
Just coming back to the debate over the growth profile for this year, can you guys give us maybe a running order in terms of how you look at the swing factors that could really get you to the single-digit growth because it does seem like the compares are going to keep getting tougher. Is it really based on market share? Incremental customer penetration? Or just Europe maybe holding up better than expected? Can you maybe just talk a little more about those three factors?
Paul Rooke
Well, I think, as we look at the core pieces of our business, ISS and Software, if you will. So ISS is all about the hardware and supplies. And yes, it is in the hardware, it is about gaining share in the segments that we want to gain share in. That's why we're kind of give you an information on our key segments. But we do plan to keep driving the MFPs and color lasers. Continue to keep driving business inkjets and it is about expanding our presence there or in it. We continue to do that and supplies should come, and so that will translate into some supplies growth. And then the third element, that's ISS and then you have the Perceptive piece, which we'll have a full year of Perceptive and plus the growth that we expect to see from there from the initiatives we're doing. Because with Perceptive, we're not only trying to leverage the Lexmark infrastructure, if you will, our presence out there with our customers, large-account customers, which should help their growth but also expand them internationally, particularly in Europe. So that element would help their growth.
Mark Moskowitz - JP Morgan Chase & Co
As then far as Europe, do you feel that the underperformance in Europe, would that GAAP widen as you go forward? I mean, that's pretty big underperformance in the fourth quarter in terms of growth? Does that widen or do you think there's some stabilization going forward?
Paul Rooke
I think what we're seeing -- we're seeing decent growth in Europe. On constant currency, I think it was up 3% or something like that in the fourth quarter. So we're still seeing decent demand in Europe. We're watching some subsegments, for example, some of the government business as they crack down and have austerity programs moving forward. But overall, we feel pretty good about demand out there in Europe as well as North America and Asia and Latin America. I mean, some of these other internationals we do see growing faster, actually, than some of our core markets. But overall, we're seeing pretty decent demand out there.
Operator
Your next question comes the line of Ben Bollin Cleveland Research .
Benjamin James Bollin
When you look at the overall landscape that you're seeing right now from a raw material perspective, have you seen any types of inflationary pressure? Is there anything you're worried about when you look at raw materials or labor into 2011 and what are you planning to do to mitigate some of that if you are seeing it?
Paul Rooke
I think, we're not seeing the constraints on materials and things like we were seeing in some in the first half of last year. But I think the way you counter that, certainly, is with further improvements and other manufacturing efficiencies, leveraged buys, even better design to counter those types of things. And that's just kind of business as usual for us. I mean we're in a very competitive tech industry and we're constantly, constantly working on costs. So I don't know that I'd call anything abnormal there in terms of what would stand out in terms of inflationary factor, but we monitor that all the time and are constantly working on other initiatives to counter those things as we see them.
Operator
Your next question comes from Jeff Fidacaro of Susquehanna.
Jeffrey Fidacaro - Susquehanna Financial Group, LLLP
I just had a quick question on the inventory level. Last quarter, it was up about $56 million that was about split between hardware and supplies, and you gained back about half of that. Was it equally worked down on the hardware side? Supply side? And just, again, the color you have in the channel for inventory.
Paul Rooke
First, on our internal Lexmark inventory, you're right, we did put a dent in it as we move from third quarter to fourth quarter. So we're quite pleased with that. We think it's back to the level we wanted it. As we mentioned, we think it's around the days of inventory that we had actually back in the second quarter, which we made good, good progress there. We haven't broken out or undisclosed any other mix of hardware and supplies there, but I would just say it's in good shape. We feel good with our inventory position there, internal inventory position. Now looking externally into the channel, as I mentioned earlier, we don't see anything abnormal there in our channels. And so I think we're in decent position.
Jeffrey Fidacaro - Susquehanna Financial Group, LLLP
And just a follow-up on the component shortages, is that largely behind us now, particularly in the low-end laser? And can you talk a little bit about the competitive environment on the low-end laser side?
Paul Rooke
We don't see any component shortages there, so yes, we would say that is behind us. In terms of competitiveness in the low-end laser, first of all our focus is on the higher page usage segments, so workgroup lasers where we're keenly focused, although we do sell some low-end lasers. And particularly as you look at the low-end laser market, we are focused probably more on color there, the colored MFPs and things rather than some of the mono products that we ran some promotional things in the fourth quarter, and we saw some good uplifts from that. So I'd say we're, first and foremost, focused on the workgroup piece and then as we look at some of the lower end product, we're looking at those that are the most profitable for us.
Operator
Our final question will be coming from the line of Chris Whitmore of Deutsche Bank.
Chris Whitmore - Deutsche Bank AG
I wanted to follow-up on the installed base question. My math suggests your installed base, in total, declined about 20% in 2010 versus 2009 with laser about flat and ink down materially. Can you comment on new calculations and where you think your installed base trended in the past four quarters or so? And then relatedly, to what extent given that massive decline in the installed base you think you can grow supplies over the next four to six quarters?
Paul Rooke
Chris, let me first point out that it's about the quality of the installed base, not the absolutes of the installed base. What you see in terms of the different dynamics -- because, for example, if you sell a workgroup laser into the installed base versus $200 low-end laser, those are not equal in terms of page production. When in fact it's all the unit, equal in terms of units, it is not equal in terms of pages. So I think the way to think about it is in terms of the quality installed base. And that's why we keep emphasizing we're trying to put more quality in the installed base as opposed to quantity. And what you're seeing is that, in particular, as we continue to drop more of the low-end inkjets, yes, those add up to a lot of units, but in terms of pages it's less of an impact. And we're trying to put in a unit that counter that trend with higher page per unit devices both on the inkjet and on the laser side. So I guess the net of this is don't be alarmed by the units. Stay focused on the quality of the installed base, which is indicated by our suppliers' revenue trends.
Operator
Thank you. With that, I would like to turn it back over to Paul Rooke, Lexmark's President and CEO for closing remarks. Please go ahead, Paul.
Paul Rooke
In closing, I'd like to briefly recap what we've discussed today. Our fourth quarter financials were better than expected reflecting good revenue growth and strong year-to-year earnings growth, along with strong cash performance. Excluding restructuring acquisition-related adjustments, revenue for the fourth quarter was up 3% year-to-year with 8% growth in lasers driven by strong growth in both laser hardware and supplies revenue. Earnings per share for the fourth quarter were $1.29, an increase of 11% year-to-year. For the full year of 2010, revenue was up 9% year-to-year, and earnings per share were $4.96, up 52% year-to-year. For 2011, our revenue outlook is about 1% growth year-to-year for the first quarter of '11 and low-single digit growth for the full year of 2011. Operating margin outlook is up sequentially for the first quarter of '11. And for the full year of 2011, we expect our operating margin about the same operating margin as the 2010 margin of 12.3%. Earnings per share, we expect non-GAAP EPS for the first quarter of 2011 to be in the range of $1.18 to $1.28.
Our business have seen the positive impact from the key strategic investments in technology, solutions and services, along with the manufacturing and support infrastructure reductions we've made over the last several years. We're seeing strong customer demand for our management services, our industry workflow solutions, our workgroup laser products and MFPs and our high-end inkjet devices. And now with the addition of Perceptive Software and our increased investments there, our future is focused on building a strong growing core of software solutions and services to complement our strong sales of workgroup lasers and high-end inkjet devices. That together, will grow revenue, sustain margins and drive long-term success for Lexmark. This is an exciting time for our company as we look to celebrate our 20th anniversary as Lexmark in March. With that, I'll turn it back over to the operator to close up the call.
Operator
That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.
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