Xerox Seeks to Increase Business with Digital Services Model

Xerox isn't having much luck in terms of share worth these days as the company's shares have failed to break $8 per share since falling below that point in the beginning of May. The company's stock fell dramatically last August from $10.45 per share to $7.70.

Digital commerce and communication have been identified as threats to Xerox's traditional core business of photocopiers and printing. As a result, diversification spread into other services. Xerox acquired Affiliated Computer Services back in 2009, which also slightly turned the business model away from printing and more towards things like add-on services, though the branching out has proved to be fruitful for Xerox.

According to a statement from Morningstar's Michael Holt, "These services aren't tied to printing, but instead stem from IT outsourcing and processing Medicaid claims, which account for half of Xerox's revenue." Holt also stated that printing is cyclical, which exposes Xerox to headwinds. However, as our economy transitions its business model to services, Holt expects greater stability of operating results.

Tablets and smartphones have not been kind to consumer printing, though Xerox has had less exposure to this than some of its competitors like HP and Lexmark. According to Keith Bachman, analyst for BMO Capital Markets, "Xerox is in better shape, since Lexmark has a residual inkjet business and HP has a very meaningful inkjet business - this is positive for Xerox given the trends over the next five years."

The remnants of Xerox's printing business focuses on business and commercial printing, which is also dying at a slower rate than consumer printing. According to Bachman, "There are trends at the corporate level where companies are consolidating four or five laser jets into one in an attempt to lower the cost of printing." In addition to that, Bachman mentioned how Xerox, Cannon and other business printing manufacturers are managing companies' print services by putting printers on office floors that are located away from offices in an attempt to deter employees from printing, though they are still close enough to keep employees from complaining.

However, Xerox's shift to a services business model is one of the clearest signs that the days of a thriving printing industry are well in the past. The consensus analyst estimate for Xerox is $0.26 per share on sales of $5.6 billion. Xerox shares were recently trading at $7.25 and have dropped 12% year-to-date. Lexmark and HP, two of Xerox's biggest rivals, were also trading negative.

Source: Forbes - Xerox Works To Duplicate Copier Glory In Digital Services Model

Stocks for Printer Makers Drop Significantly

Laser and inkjet printer maker shares fell recently after Lexmark joined a whole host of other technology companies warning of falling sales in Europe. Lexmark's stock dropped as much as 17%, making it one of the biggest losses on the New York Stock Exchange. In addition to that, Lexmark's drop dragged down Xerox and HP, two rivals of the company.

Deteriorating economic conditions in Europe and a stronger dollar have led to grim forecasts from several American technology companies, including Advanced Micro Devices and Applied Materials. HP shares decreased by 3% to $18.77, the lowest in over a year, while Xerox saw stocks decrease as much as 3% as well. Japanese rival companies Canon and Ricoh both closed down on the Tokyo Stock Exchange as well.

Michael Holt, an analyst for Morningstar, stated that printing, which is always one of the most dispensable parts of a company's budget, is always the first target of cost-cutting measures. According to Holt, "When you see times of macro economic distress, printing is one of the areas most susceptible to changes in demand. Even if we have long term negative trends in printing, they can be exaggerated in the short run by economic conditions."

Lexmark derives nearly 40% of its sales from Europe, the Middle East and Africa, though it recently cut its profit outlook on Thursday and said second quarter revenue would decrease by nearly 12%, a number greater than what was initially anticipated. Lexmark also stated that it would be hurt by a strong dollar in the second quarter as well. The euro has shed 5.5% against the U.S. dollar this year alone.

Unlike Lexmark, HP has other business ventures that it can fall back on, including its Personal Systems Group, which is currently being merged with its printing group. HP derives nearly 20% of its revenue from its Imaging and Printing Group, which the company considers a steady cash flow due to recurring sales of printer cartridges. According to Holt, "Lexmark is focused on mainly business printing but HP has exposure to both businesses and consumers. We see consumer printing as declining much more rapidly than business."

Source: Reuters - Lexmark's outlook warning pulls down printer makers