A revitalized Hewlett-Packard (NYSE:HPQ) appears to be successfully taking on a number of rivals, such as Dell (NASDAQ:DELL), which is having to decrease the selling price of its computers to effectively compete with HP. Same goes for Lexmark (NYSE:LXK), where HP has undercut what has traditionally been Lexmark's turf -- affordably priced printers.

Lexmark has moved to increase its laser jet printer product offerings, playing on HP's home turf as it owns approximately 40% of the laser market. But shifting product mix from inkjet to laser printers takes time. Meanwhile, other firms such as Canon (NYSE:CAJ) and Epson (which, along with Lexmark and HP, hold about 75% market share) are eating away at Lexmark's more entry-level and aggressively priced product mix.

The final competitive front consists of the battle for selling highly profitable printer ink cartridges and related supplies, or the notorious razor and razor-blade model popularized by Gillette, now part of Proctor & Gamble. Indeed, at times, Lexmark and others in the industry have sold their printers for a loss to ensure consumers purchase their own cartridges that reap huge profit margins. But lately, outside firms such as drugstore chain Walgreen (NYSE:WAG) have begun to offer much cheaper ways to refill existing cartridges.

Sounds like a tough industry, but it still has an estimated $85 billion market size and is expected to grow as consumers increasingly work from home or print their own digital photos. So, what is Lexmark doing to fend off competition and capitalize on these trends? For starters, it's focusing on reducing costs and the overall cost structure of its operations. It has also increased R&D development and identified color printing as an area to focus on, as well as multifunctional, or all-in-one, devices capable of printing, copying, and faxing documents. Plus, there's the move to laser jets.

Fortunately, Lexmark has a conservative management team with a solid reputation for generating high levels of cash flow. Second-quarter results released Tuesday demonstrated that things are indeed tough currently as restructuring expenses are taking a big bite out of operating earnings, though on a per-share basis, they actually increased as management is buying back quite a bit of stock. Overall sales fell about 4%, but cash flow generation appeared to be decent.

The stock fell Tuesday as third-quarter guidance was below what analysts were originally projecting. The shares have recovered a bit since then but are still way below the highs of $90 reached earlier in 2005 before industry conditions became grim.

I'm currently relying on management's track record of dealing with industry turmoil in the past, but if things don't turn around relatively soon, I may have to take Legendary Investor John Neff's advice and "fess up, get out, and move on" to a better investment idea. I'm not even sure he would find Lexmark's P/E ratio low enough to warrant investment, but there is a chance Lexmark could eventually prevail from current weakness to profitably grow again.

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Fool contributor Ryan Fuhrmann is long shares of Lexmark and Walgreen but has no financial interest in any other company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.