Like a cheap knockoff toner cartridge, Lexmark (NYSE:LXK) isn't producing the razor-sharp performance that investors used to expect. With the company preannouncing very weak third and fourth quarters, many are probably starting to wonder what lies ahead for this former darling.

Getting the ugliness out of the way first, the company announced that third-quarter earnings would come in at less than half of the current average analyst estimate. While some of this shortfall is due to revenue underperformance -- the company is now looking at a 4%-5% drop, versus the mean expectation of a 3% rise -- margins are also clearly eroding, as once-positive operating leverage begins to cut the other way.

Unfortunately, the company didn't give much reason to hope that the fourth quarter will be any better. Declining to give specific guidance, management simply said that results would fall "significantly below" the present average estimates.

Although Lexmark didn't go into a great amount of detail concerning the state of its business, its statement did confirm what I've thought for a little while now. The company is seeing lower revenue from supplies (including ink and toner) and printers alike, forcing it to lower prices in order to move product. That makes sense, given that Hewlett-Packard (NYSE:HPQ) has been very aggressive with its own pricing in an attempt to regain market share.

I'm also starting to wonder a bit about Lexmark's new product development. Having recently gone shopping for an office printer, I noticed that there seemed to be significantly more new products on the shelves from HP and Seiko Epson, compared with Lexmark. I'll be the first to point out that a single person's anecdotal experience proves nothing, but it might be a clue to these companies' broader competitive landscape.

The good news? In my opinion, Lexmark is far from out of the game. The company has a solid record of cash flow production and a sizable cash hoard. It can afford to spend more on new product development, if that is in fact the problem. That said, it will take time for the market to stabilize, and for Lexmark to figure out how best to deal with a large competitor that seems perfectly happy to accept low margins.

Investors who like turnarounds should start digging into Lexmark. My hunch is that there's still plenty of time with this one; more conservative investors will probably want to wait to ensure that another shoe isn't about to drop on their heads. All the same, I don't think that Lexmark's problems are beyond repair, nor do I think HP can play the low-price game forever. There might well be a second act for Lexmark and its shares.

Lexmark's the spot for further Foolishness:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).