Xerox reports Q2 earnings, sees continued decline in technology revenue

Christine Dunne
Jul 20, 2012

This morning Xerox reported its Q2 financials; similar to Q1, the company saw growth in services revenue and a decline in technology revenue (printers, MFPs, scanners, software, supplies, etc.). Xerox also experienced a decline in “other” revenue, which includes paper sales, wide-format systems, and electronic presentation systems.

Xerox’s Q2 Revenue, Overall and by Business Segment

While Xerox saw install growth in all three product groups (entry, mid-range, and high-end), this was more than offset by price declines, a lower product mix, the shift to MPS, and a weak macro-environment, according to company executives during this morning’s earnings call. CEO Ursula Burns elaborated on the weak macro-environment, saying that economic uncertainly – especially in Europe – has significantly impacted technology revenue. In fact, according to Burns, two-thirds of the equipment sales decline was from Europe.

Burns added that services are the growth driver to give Xerox financial flexibility and help minimize the impact from their slowing technology business (services now represent 51% of Xerox’s business compared to 48% a year ago). The fact that Burns publicly acknowledged Xerox’s “slowing technology business” represents a significant evolution in messaging from the company. Up until this point we have only heard Hewlett-Packard CEO Meg Whitman refer to the secular change occurring within the printing industry. Unfortunately, Burns did not dive deep into some of the major reasons behind the decline, including the proliferation of mobile devices like smart phones and tablets and the spread of affordable and secure cloud storage systems.

Instead Burns focused on trends that are less detrimental (and in some cases beneficial) to Xerox’s business, including less printing by home users and very small businesses (Xerox is not heavily involved in these segments), the move from single-function devices to MPS, the shift to color, growth in the SMB market, and a slowdown in high-end black and white. It is clear that Xerox is tailoring many of its offerings to these trends, and achieving relative success. Indeed, Xerox revealed they are gaining market share in many technology segments across the world (including high-end color printing, which Burns called the most competitive segment).

Nevertheless, we believe that they will soon need to address the other, more permanent forces impacting the technology business, especially given their expectations for continued mid single digit declines in technology revenue (this represents a change from their Q1 expectations of flat to low single digit declines). It can be easy to talk about successes but it is also equally, if not more important, to address key challenges affecting business. Xerox is to be commended for focusing on growing areas of hardware as well as key services verticals such as healthcare, human resources, and transportation. At the same time, we would like to see evidence that they truly understand and are responding to the revolutionary ways in which people are viewing, manipulating, and storing documents.

 

 

 

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