The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K.

All assumptions, anticipations, expectations, and forecasts contained herein are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that involve risks and uncertainties. Forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes," and similar language. Our actual results could differ materially from those discussed here. For a discussion of the factors that could impact our results, readers are referred to Item 1A, "Risk Factors," in Part I of this Annual Report on Form 10-K and to our other reports filed with the SEC. We do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Overview

Key financial results for 2011 were as follows:

• Our results for the year ended December 31, 2011 reflect revenue growth, gross margin improvement, and reduced operating expenses as a percentage of revenue. We completed our acquisition of Alphagraph on December 6, 2011, Prism on August 2, 2011, Entrac on July 25, 2011, and Streamline on February 16, 2011. Their results are included in our results of operations subsequent to those respective acquisition dates.

• Fiery revenue increased by 13% primarily due to strong demand for current products from each of the leading printer manufacturers, increased revenue from stand-alone and embedded servers and proofing software, and to a lesser extent, our acquisition of Entrac, which was acquired during the third quarter of 2011. The Fiery segment continues to benefit by the transition from analog to digital technology.

• Inkjet revenue increased by 16% primarily due to increased sales of super-wide format printers and digital UV ink. The UV printer and ink revenue increase resulted from the ongoing migration of analog, as well as the ongoing transition from solvent-based to UV curable-based printing and from UV curing to UV/LED curing. Digital UV ink revenue increased as a result of the high utilization that our UV printers are experiencing in the field, partially offset by decreased solvent printer installed base demand measured by solvent ink usage.

• APPS revenue increased by 41% primarily due to our acquisition strategy in the APPS operating segment, as well as increased Pace, Monarch, Radius, and web-to-print revenue. APPS revenue benefited from our acquisition of Prism, which closed during the third quarter of 2011 and to a lesser extent, our acquisition of Streamline, which closed during the first quarter of 2011, and to a lesser extent, our acquisition of Alphagraph, which closed during the fourth quarter of 2011. The acquisitions of Prism and Alphagraph in 2011 and Radius in 2010 have led to an increased international presence for our APPS business.

• The gross profit percentage improved by 3 percentage points from 53% in 2010 to 56% in 2011 primarily due to improved Inkjet operating segment gross profit percentages of 39% (40% during the fourth quarter), compared to 33% in the prior year. The Inkjet gross profit percentage improved compared with the prior year primarily due to fixed manufacturing costs being spread over higher Inkjet revenue and reduced warranty exposure, which resulted from improved product performance, partially offset by engineering design modifications to improve quality. The Inkjet gross profit percentage also increased due to the $2.3 million charge for excess solvent inventories and related end-of-life purchases in 2010, as a result of the accelerating transition from solvent to UV technology.

• Operating expenses as a percent of revenue decreased from 53% in 2010 to 52% in 2011. Operating expenses increased by $35.7 million between 2010 and 2011, but decreased as a percentage of revenue due to the 17% increase in revenue during the corresponding periods. The increase in operating expenses was primarily driven by head count increases related to the Alphagraph, Prism, Entrac, and Streamline acquisitions, reinstatement of salaries and benefits reduced during the economic downturn, variable compensation due to improved profitability, commission payments resulting from increased revenue, non-recurring engineering expenses related to our product launches, change in fair value of contingent consideration related to our Radius acquisition, and increased stock-based compensation expense.

• Interest and other income (expense), net, increased by $4.4 million primarily driven by the sale of a minority investment in a privately-held company for $2.9 million because the investment was no longer considered to be strategic and $2.2 million decrease in unfavorable realized and unrealized foreign exchange fluctuations primarily resulting from our Euro and British pound sterling-denominated assets and liabilities including intercompany loans, partially offset by $0.4 million of investment gains realized in 2010.

• We recorded a tax provision of $3.0 million in 2011 on pre-tax income of $30.4 million compared to a tax benefit of $9.1 million in 2010 on a pre-tax loss of $1.6 million. The change from 2010 to 2011 primarily related to the decreased benefit realized from the recognition of $2.7 million of previously unrecognized tax benefits in 2011, compared with $8.7 million recognized in 2010 and the impact of the increase in pre-tax operating income in the current year.

Results of Operations

The following table presents items in our consolidated statements of operations as a percentage of total revenue for 2011, 2010, and 2009. These operating results are not necessarily indicative of results for any future period.

                                                 For the years ended December 31,
                                               2011              2010            2009
 Revenue                                           100 %             100 %         100 %

 Gross profit                                       56                53            53
 Operating expenses:
 Research and development                           20                21            28
 Sales and marketing                                20                21            25
 General and administrative                          9                 8             9
 Amortization of identified intangibles              2                 2             5
 Restructuring and other                             1                 1             2
 Asset impairment                                   -                 -              1

 Total operating expenses                           52                53            70

 Income (loss) from operations                       4                -            (17 )
 Interest and other income (expense), net            1                -              1
 Gain on sale of building and land                  -                 -             20

 Income (loss) before income taxes                   5                -              4
 Benefit from (provision for) income taxes          (1 )               2            (5 )

 Net income (loss)                                   4 %               2 %          (1 )%

Revenue

We classify our revenue, gross profit, assets, and liabilities in accordance with our three operating segments as follows:

Fiery, which consists of print servers, controllers, and DFEs, which transform digital copiers and printers into high performance networked printing devices for the office and commercial printing market. This operating segment is comprised of (i) stand-alone print controllers and servers connected to digital copiers and other peripheral devices, (ii) embedded and design-licensed solutions used in digital copiers and multi-functional devices, (iii) optional software integrated into our controller solutions such as Fiery Central and MicroPress, (iv) Entrac, our self-service and payment solution, (v) PrintMe, our mobile printing application, and (vi) stand-alone software-based solutions such as our proofing and scanning solutions.

Inkjet, which consists of sales of our VUTEk super-wide and Rastek wide format inkjet printers, Jetrion label and packaging digital inkjet printers, ink, parts, and service revenue.

APPS , which consists of our business process automation software, including Monarch (formerly Hagen), PSI, Logic, PrintSmith, and PrintFlow; Pace, our business process automation software that is available in a cloud-based environment; Digital StoreFront, our cloud-based e-commerce solution that allows print service providers to accept, manage, and process printing orders over the internet; Radius, our business process automation software for label and packaging printers; PrintStream, our business process automation software for mailing and fulfillment services in the printing industry; Prism, our business process automation software for the printing and packaging industry; and Alphagraph, which includes business process automation solutions for the graphic arts industry.

We sell PrintSmith to small print-for-pay and small commercial print shops; Pace to medium and large commercial print shops, display graphics providers, in-plant printing operations, and government printing

operations; Monarch to large commercial, publication, direct mail, and digital print shops; Radius to the label and packaging industry; Digital StoreFront to customers desiring e-commerce and web-to-print solutions, and PrintStream to Pace and Monarch customers that provide fulfillment services to their end customers.

Our revenue by operating segment for the years ended December 31, 2011, 2010, and 2009 was as follows (in thousands):

                                   For the years ended December 31,                             % change
                                                                                            2011       2010
                                                                                            over       over
                        2011                     2010                     2009              2010       2009
 Fiery           $ 270,073        46 %    $ 238,621        47 %    $ 193,012        48 %       13 %       24 %
 Inkjet            240,318        40        207,654        41        159,732        40         16         30
 APPS               81,165        14         57,732        12         48,364        12         41         19

 Total revenue   $ 591,556       100 %    $ 504,007       100 %    $ 401,108       100 %       17 %       26 %

Proofing software revenue previously reported in the APPS operating segment of $8.6 million for the year ended December 31, 2009 has been revised to conform to the presentation for the years ended December 31, 2011 and 2010, reflecting the reclassification of proofing software from the APPS to the Fiery operating segment. Total revenue for the year ended December 31, 2009 has not changed.

Overview

Revenue was $591.6, $504.0, and $401.1 million for the years ended December 31, 2011, 2010, and 2009, respectively, resulting in a 17% increase in 2011 compared with 2010 and a 26% increase in 2010 compared with 2009. The $87.6 million increase in 2011 compared with 2010 consisted of increased Fiery, Inkjet, and APPS revenue of $31.5, $32.7, and $23.4 million, respectively. The $102.9 million increase in 2010 compared with 2009 consisted of increased Fiery, Inkjet, and APPS revenue of $45.6, $47.9, and $9.4 million, respectively.

Fiery Revenue

Fiery revenue increased by $31.5 million, or 13%, in 2011 compared with 2010, as the Fiery operating segment continues to benefit from the conversion from analog to digital technology. The Fiery operating segment has experienced strong demand in 2011 for current products from the leading printer manufacturers and increased revenue from stand-alone and embedded servers and proofing software. Fiery revenue benefited to a lesser extent from the Entrac acquisition, which closed during the third quarter of 2011.

Fiery revenue increased by $45.6 million, or 24%, in 2010 compared with 2009, primarily driven by strong demand for our digital color controllers in the high-end production market. New and refreshed printer manufacturer engine launches contributed to the revenue increase.

Inkjet Revenue

Inkjet revenue increased by $32.7 million, or 16%, in 2011 compared with 2010, across all of our Inkjet product lines encompassing increased printer, digital UV ink, and service part sales. Following the successful introduction of the GS series of super-wide format printers in 2009, we continued to extend the GS product family in 2010 and 2011 with LED technology on our hybrid GS, as well as a GS roll-to-roll version. In addition, we introduced new printing solutions including textile and entry-level production UV hybrid printers.

Coming out of the 2009 downturn, the transition from solvent-based printing to UV curable-based printing and the transition from UV curing to UV/LED curing has continued to accelerate. The digital UV ink and service part sales increase reflects the high utilization that our UV printers are experiencing in the field, which is partially offset by a decreased solvent printer installed base demand, also measured by solvent ink usage and service parts.

Inkjet revenue increased by $47.9 million, or 30%, in 2010 compared with 2009, primarily due to GS series printer sales and significantly increased UV printer and ink sales.

APPS Revenue

APPS revenue increased by $23.4 million, or 41%, in 2011 compared with 2010, primarily due to internally generated revenue increases with respect to the Pace, Monarch, Radius, and web-to-print products. APPS revenue benefited from our acquisition of Prism, which closed during the third quarter of 2011 and to a lesser extent, our acquisitions of Streamline and Alphagraph, which closed during the first and fourth quarters of 2011, respectively. APPS recurring revenue includes subscription revenue and maintenance fees.

APPS revenue increased by $9.4 million, or 19%, in 2010 compared with 2009, due to revenue realized from our 2010 acquisition of Radius, in addition to increased Pace and web-to-print revenue.

Our revenue by geographic area for the years ended December 31, 2011, 2010, and 2009 was as follows (in thousands):

                                                   For the years ended December 31,                             % change
                                                                                                            2011       2010
                                                                                                            over       over
                                        2011                     2010                     2009              2010       2009
Americas                         $ 345,303        58 %    $ 293,747        58 %    $ 229,294        57 %       18 %       28 %
EMEA                               178,471        30        149,488        30        122,696        30         19         22
Asia Pacific                        67,782        12         60,772        12         49,118        13         12         24
Japan                               35,655         6         41,853         8         35,041         9        (15 )       19
Rest of world ("ROW")               32,127         6         18,919         4         14,077         4         70         34

Total revenue                    $ 591,556       100 %    $ 504,007       100 %    $ 401,108       100 %       17 %       26 %

2011 Compared with 2010

Our consolidated revenue increase of $87.6 million, or 17%, in 2011 compared with 2010, resulted from double digit percentage growth in Americas, EMEA, and ROW resulting from increased revenue in all three operating segments, partially offset by decreased revenue in Japan. The 2011 and 2010 Fiery and Inkjet product launches mitigated the impact of the weak economic environment in 2011. The operating segment geographic breakdown in 2011 remained comparable to 2010 with the exception of the decrease in Japan.

Americas revenue increased by $51.6 million, or 18%, in 2011 compared with 2010. Americas revenue increased due to double digit percentage revenue increases in all three of our operating segments.

EMEA revenue increased by $29.0 million, or 19%, in 2011 compared with 2010, due to double digit percentage revenue growth in all three of our operating segments.

• Fiery revenue in EMEA increased due to strong demand for current products from the leading printer manufacturers and increased revenue from stand-alone and embedded servers and proofing software.

• Inkjet revenue growth in EMEA was primarily driven by increased sales of our super-wide format printers, digital UV ink, and parts.

• Our APPS EMEA customer base has increased significantly as a result of the Alphagraph and Prism acquisitions and benefited from an expanded international sales force acquired with the Alphagraph, Prism, and Radius acquisitions.

Japan revenue decreased by $6.2 million, or 15%, in 2011 compared with 2010, primarily due to decreased Fiery and Inkjet revenue resulting from the poor economy in Japan and delayed sales and supply constraints resulting from the March 2011 earthquake and tsunami.

ROW revenue increased by $13.2 million, or 70%, in 2011 compared with 2010, primarily due to increased demand for Fiery and Inkjet products in China and the rest of Asia. We have expanded our international sales force as a result of the Alphagraph, Prism, and Radius acquisitions.

In the individual regions, Fiery revenue represented 40%, 46%, 93%, and 51% of 2011 revenue in the Americas, EMEA, Japan, and ROW, respectively, compared with 41%, 49%, 90%, and 40% of 2010 revenue.

Inkjet revenue represented 40%, 49%, 7%, and 41% of 2011 revenue in the Americas, EMEA, Japan, and ROW, respectively, compared with 41%, 48%, 9%, and 57% of 2010 revenue.

APPS revenue represented 20%, 5%, 0%, and 8% of 2011 revenue in the Americas, EMEA, Japan, and ROW, respectively, compared with 18%, 3%, 1%, and 3% of 2010 revenue.

2010 Compared with 2009

Our consolidated revenue increase of $102.9 million, or 26%, in 2010 compared with 2009, resulted from double digit percentage growth in all three operating segments. The operating segment geographic breakdown in 2010 remained comparable to 2009. Comparing 2010 to 2009, Americas, EMEA, Japan, and ROW revenue increased by 28%, 22%, 19%, and 34%, respectively.

Revenue rebounded in 2010 across all regions and all operating segments within each region. New Fiery and Inkjet product launches mitigated the impact of the weak economic environment in 2010. Revenue had previously declined in 2009 primarily due to weakness in Fiery sales caused by reduced demand from the leading printer manufacturers due to the slow economy, weak Inkjet sales due to the tight global credit market, and the decline in global marketing spending.

Shipments to some of our significant printer manufacturer customers are made to centralized purchasing and manufacturing locations, which in turn ship to other locations, making it difficult to obtain accurate geographical shipment data. Accordingly, we believe that export sales of our products into each region may differ from what is reported. We expect that sales outside of the U.S. will continue to represent a significant portion of our total revenue.

Although end customer and reseller channel preference for Fiery products drives demand, most Fiery revenue relies on printer manufacturers to design, develop, and integrate Fiery technology into their print engines. A significant portion of our revenue is, and has been, generated by sales of our Fiery printer and copier related products to a relatively small number of leading printer manufacturers. Xerox and Ricoh each provided more than 10% of our revenue individually and together accounted for 26% of our revenue for the year ended December 31, 2011. Xerox and Canon each contributed over 10% of our revenue and together accounted for approximately 27% and 26% of our revenue for the years ended December 31, 2010 and 2009, respectively.

The percentage of business driven by our end customers through the leading printer manufacturers as, in effect, distributors of our products has leveled off in recent years after decreasing for several years previously. In 2011, 2010, and 2009, 57% of our revenue was from other sources. During 2011, on a quarterly basis, revenue from these leading printer manufacturers decreased from 49% in the first quarter to 38% by the fourth quarter with revenue from other sources increasing from 51% in the first quarter to 62% by the fourth quarter. Over time, we expect our revenue from the leading printer manufacturers to continue to decline. Because sales of our printer and copier-related products constitute a significant portion of our revenue and there are a limited number of printer manufacturers producing copiers and printers in sufficient volume to be attractive customers for us, we expect that we will continue to depend on a relatively small number of printer manufacturers for a significant portion of our Fiery controller revenue in future periods. Accordingly, if we lose or experience reduced sales to one of these printer manufacturer /distributors, we will have difficulty replacing that revenue with sales to new or existing customers and our Fiery revenue will likely decline significantly.

Our reliance on revenue from the leading printer manufacturers decreased throughout the year ended December 31, 2011 because the Inkjet and APPS revenue increases were greater than the Fiery revenue increase in both percentage and absolute dollars. Although end customer and reseller channel preference for Fiery products drives demand, most Fiery revenue relies on the leading printer manufacturers to design, develop, and integrate Fiery technology into their print engine as described above. No assurance can be given that our relationships with these and other printer manufacturers will continue or that we will be successful in increasing the number of printer manufacturing customers or the size of our existing relationships. Several of our printer manufacturing customers have reduced their purchases from us at various times in the past and any of these printer manufacturers or other customers could do so in the future as there are no contractual commitments to purchase our products in significant amounts, or at all. Such reductions have occurred in the past and could in the future have a significant negative impact on our consolidated financial position and results of operations. We expect that if we continue to increase our revenue in the Inkjet and APPS operating segments, the percentage of our revenue from printer manufacturing customers will decrease.

We intend to continue to develop new products and technologies for each of our product lines including new generations of server and controller products, super-wide and wide format printers, and other new product lines, and to distribute those new products to or through current and new printer manufacturers, distributors, and end users in 2012 and beyond. No assurance can be given that the introduction or market acceptance of current or future products will be successful.

If sales of our products do not grow over time in absolute terms, or if we are not able to meet demand for higher unit volumes, it could have a material adverse effect on our operating results. There can be no assurance that products that we introduce in the future will successfully compete, be accepted by the market, or otherwise effectively replace the volume of revenue and/or income from our older products. Market acceptance of our software products, products acquired through acquisitions, and other products cannot be assured. In addition, we may experience potential loss of sales, unexpected costs, or adverse impact on relationships with customers or suppliers as a result of acquisitions.

We also believe that in addition to the factors described above, price reductions for our products will affect revenue in the future. We have previously reduced, and in the future will likely change, prices for our products. Depending on the price elasticity of demand for our products, the pricing and quality of competitive products, and other economic and competitive conditions, price changes have had, and may in the future have, an adverse impact on our revenue and profits.

Gross Profit

Gross profit by operating segment, excluding stock-based compensation, for the
years ended December 31, 2011, 2010, and 2009 was as follows (in thousands):



                                                       For the years ended December 31, 2011
                                                                                    Stock-based
                                                                                    Compensation
                                   Fiery           Inkjet            APPS             Expense              Total
Revenue                          $ 270,073        $ 240,318        $ 81,165        $           -         $ 591,556
Cost of revenue                     86,989          147,580          24,340                 1,664          260,573

Gross profit                     $ 183,084        $  92,738        $ 56,825        $       (1,664 )      $ 330,983

Gross profit percentages              67.8 %           38.6 %          70.0 %                                 56.0 %

                                                       For the years ended December 31, 2010
                                                                                    Stock-based
                                                                                    Compensation
                                   Fiery           Inkjet            APPS             Expense              Total
Revenue                          $ 238,621        $ 207,654        $ 57,732        $           -         $ 504,007
Cost of revenue                     77,402          139,533          18,403                   984          236,322

Gross profit                     $ 161,219        $  68,121        $ 39,329        $         (984 )      $ 267,685

Gross profit percentages              67.6 %           32.8 %          68.1 %                                 53.1 %


. . .