Canon Inc. (NYSE: CAJ) reported a 14.2 percent increase in third-quarter earnings, thanks to cost-cutting measures. But because of historically strong yen and lower production activities, the company lowered its full year 2011 outlook.

The Tokyo-based Canon posted third-quarter earnings of 77.86 billion yen or 64.42 yen per share, up from last year's 68.20 billion yen or 55.07 yen per share. Sales marginally rose to 916.91 billion yen from 913.15 billion yen.

Revenue from the company's office business unit declined 6.7 percent to 472.9 billion yen, while consumer business unit revenue grew 7 percent to 347.4 billion yen.

Canon reported third-quarter laser printer year-over-year unit growth of 9 percent versus 1 percent decline in the second quarter, with color unit growth of 3 percent year-over-year versus 33 percent decline in second quarter, and monochrome laser unit growth of 10 percent year-over-year versus 4 percent increase in second quarter.

Canon indicated that laser consumables grew 2 percent in local currency in third quarter versus flat year-over-year in second quarter.

We believe Canon's laser beam printer commentary tends to provide a good read for Hewlett-Packard Co.'s (NYSE: HPQ) laser printer business as HP sources all of its laser printer engines and toners from Canon and partners with Canon for certain copier/MFP sales and managed print services, said Ben Reitzes, an analyst at Barclays Capital.

He said laser printers and associated supplies account for about half of HP's Imaging & Printing Group revenue (the IPG unit accounts for about 20 percent of HP's total revenue; 30 percent of total profits).

Reitzes believes these growth rates provide support to his subdued estimates for HP's October quarter, but he remains comfortable with muted growth rates for HP's IPG business given pressure from currency and difficult compares.

Looking ahead into the full year, the company reduced its sales outlook to 3.65 trillion yen from its previous forecast of 3.78 trillion yen. The company also lowered its earnings guidance to 230 billion yen from its previous estimate of 260 billion yen.

For the full year 2011, Canon now expects laser unit growth of just 7 percent year-over-year versus 17 percent previously expected. The company now expects a 1 percent year-over-year decline in color lasers versus a 16 percent growth earlier anticipated. The company also projects monochrome lasers to grow 9 percent year-over-year compared to a 17 percent growth previously expected.

Canon indicated that there is some uncertainty in demand in the U.S. and Europe and that its original equipment manufacturer  partner, HP, has reduced orders temporarily in the fourth quarter. With regard to supplies, Canon expects 7 percent year-over-year growth in local currency for laser consumables versus 8 percent previously projected.

For HP, Canon's lowered laser unit guidance is a bit troubling given IPG accounts for 30 percent of HP profits; although Canon did largely maintain its supplies guidance.

Reitzes believes HP's printing segment may be impacted by weaker consumer demand, a deceleration in corporate demand and even some impact from recent management turnover. Also, he believes the evaluation of the PC unit doesn't seem to be helping HP's printer business.

For HP's fiscal fourth quarter of 2011 (ending in September), Reitzes estimates a 5 percent year-over-year decline in IPG revenue including a commercial hardware revenue decline of 9.5 percent and an overall supplies decline of 4 percent.

Given Canon's expectations for fourth quarter and currency headwinds, we believe there could be additional pressure on our IPG estimates moving forward. For HP's fiscal 2012, we estimate flat IPG revenue growth including 3 percent year-over-year increase in commercial hardware and 1 percent year-over-year rise in supplies, said Reitzes.

Canon's American Depository Receipt closed Tuesday's regular trading down 3.80 percent at $45.11 on the NYSE, while shares of Hewlett-Packard closed down 3.73 percent at $25.05.