The Cambridge-based inkjet manufacturer said that demand from the ceramic tile decoration sector, which makes up the bulk of Xaar's sales, had softened as a result of the slowdown.
As a result, Xaar has reduced its full year revenue expectation for the second time in just over two months, to £115-125m, following its revenue and profits warning in June. The stock market reacted badly to the news, with Xaar's share price falling 23% to 430p in early trading (previous close: 560p).
Xaar's "exceptional year" in 2013, in which revenue leapt 55% to £134.1m, has made year-on-year comparison in 2014 a somewhat chastening experience as business has returned to more typical trading patterns.
It has also led to a correction in the firm's share price, which ballooned on the back of 2013's results. Xaar chief executive Ian Dinwoodie said: "At the back end of last year the share price - at over 20 times earnings - you could say was looking very toppy and what happens when you then have a correction is quite often it over-corrects the other way."
Revenue for the first six months of the year was £60.4m (H1 2013: £70.2m), while pre-tax profit came in at £15.3m (H1 2013: £23.4m). Net cash at 30 June 2014 was £48.1m, versus £49.4m a year earlier.
In addition to the drop in Xaar's Industrial market revenues, from £49.9m in H1 2013 to £44.1m in H1 2014, the manufacturer also reported 19% year-on-year revenue drops in both its Graphics and Packaging segments, to £6.2m and £6.7m respectively.
Dinwoodie said that the drop in Graphics revenues was "expected" as a result of its older products coming to the end of their life with the new Xaar 501 printhead not being ready to start commercial shipments yet.
However, he described the drop in Packaging revenues as "disappointing" and said that it resulted from a slowdown in the sales of digital label presses by its five primary OEM partners.
"2013 was the first year we'd started to see progress in digital labels so its disappointing to see it drop back to 2012 levels again," he added. "Our partners continue to tell us that the opportunity continues to exist and that this is just a timing issue...but the sales cycle for these digital label presses is very long."
Meanwhile, the firm has recruited a new chief technology officer in former Océ Printing Systems vice president of Printer Technology, Edmund Creutzmann, who joined the board in April 2014.
Creutzmann, who has over 30 years experience of digital printing R&D spanning LED, electrophotographic and inkjet imaging technologies, will head up Xaar's combined R&D function (including its Bulk Piezo and Thin Film Piezo or P4 products), which includes some 150 R&D engineers and is expected to invest £20m this year.
Ramon Borrell, director of R&D, has stepped down from the board to fully focus on the P4 development.
Dinwoodie said the firm was on-track in its hunt for his successor and was still targeting a handover in late Q1 to Q2 next year.
