Jan 25, 2013
Xerox and EFI announced their 4Q 2012 earnings yesterday. Both companies continue to execute on strategies to transform, but are moving in different directions. There are lessons to be learned for the industry.
Xerox – Services for Growth, Technology for Profit
Xerox has made it very clear that they in the midst of a shift to a Services-led strategy. The company is managing its Technology business for profits and cash generation by lowering the cost basis and investing in services areas.
Xerox CEO Ursula Burns opened the earnings call by saying â€œXerox is a company going through a seismic transformation.â€ The financial results show how far Xerox has transformed. The Services segment of the company grew 7% and is now 52% of the business and the Technology segment declined 8% and is now 48% of total revenue. For the first time, Xerox generated more in profits from Services than from Technology.
Noted Burns during their earnings call, â€œWe have a clear understanding of the market dynamics in our Document Technology business. It remains a very profitable cash-generating operation. We are maximizing this profit by lowering the cost base and shifting investments to focused areas of growth.â€ Xerox has acted on this strategy by reducing its R&D investments, selling off financial receivables, and trimming staff across the Technology business.
Indeed, Xerox has a positive outlook for the Services business noting an increase in pipeline especially for â€œmega dealsâ€ given improvements in the overall economy. In response to a question about growth prospects for the Technology business Ms. Burns stated, â€œWe expect total revenues to be down in the mid-single digits. We expect softening of the decline that we saw in 2012. We saw double digit declines in 2012. I expect we will continue to see declines, but it will be moderated a bit as we launch new products.â€
EFI – Industrial Inkjet and Productivity Software
EFI, on the other hand, is transforming by focusing on industrial inkjet systems and productivity software for the production printing industry on a global basis while becoming less dependent on the Fiery controller business (35% of revenue down from 41% last year).
Guy Gecht, CEO of EFI, commented during their earnings call later in the day, â€œDemand for digital technologies in industrial imaging is still in its early stages and we expect the growth momentum to continue in 2013.â€ Regarding the productivity software segment, Gecht stated, â€œThis part of our business is helping customers cut costs and become more productive. In that context the pressure on the industry helps focus our customers on taking steps to automate their business process and drive productivity in areas where we are the undisputed market leader.â€
EFI has had 12 consecutive quarters of revenue and earnings growth. The company is projecting their industrial inkjet business will grow in the â€œmid to high single digitsâ€ in Q1 and the productivity software business will grow approximately 15% in the coming quarter. EFI forecasts the Fiery business will be flat despite increased product introductions by several of their key OEMs including Xerox.
During the Q & A session of their calls, both CEOâ€™s indicated they will continue to look for acquisitions to accelerate their transformation and growth. Xerox stated they are planning for up to $500 million in acquisitions primarily in the Services business. EFI noted they made 4 acquisitions in 2012 and expect to do the same â€œplus or minus a coupleâ€ in 2013.
From an overall industry perspective, Gecht stated that â€œour vision for the printing industry is it will be a smaller industry in the next 3 to 5 years, but a lot more efficient, a lot more on demand, a lot more digital.â€ He went on to comment, â€œWe are expanding into the industrial inkjet business. This is an area that is not going to shrink because there really is no electronic way to replace your tiles, or your labels, or your odd shaped signage. It depends on which segment of the industry you are looking at. Some of them clearly, like publishing, are shrinking, document printing is shrinking. Some are clearly growing. Digital printing in every category is growing.â€
I believe many vendors and service providers are facing similar decisions as Xerox and EFI. The question is in which direction should you pivot? Services or technology? Office or production? Documents or non-documents? Efficiency or innovation?
InfoTrends has recently completed three important studies that can help companies make some of these decisions and guide your strategy.
Our Services Expansion Opportunities for Document Outsourcing study was based on 578 interviews with enterprise decision makers across Canada, France, Germany, the UK, and the US to understand customer requirements and vendor opportunities in business process outsourcing, customer communications management, and document processing.
Our Transforming Textile Printing study examined the textile industry supply chain and demand drivers for digital textile production. Our research indicates that digital textile equipment and ink sales will grow at approximately 30% per year over the next five years.
Finally, our study, What Do Converters Want? examined the market requirements and growth for color digital label and package printing. This market is growing at approximately 20% per year with less than 2% industry penetration.
There is no one right answer for the industry, but I can assure you standing still is not a viable long-term option. The direction you chose needs to reflect your vision for the future.
InfoTrends is helping companies identify opportunities and figure out a path forward. Sign up for some of our resources below.
More blogs from Jeff Hayes