Xerox Results: MPS Bright Spot and HP Comments

Xerox provides great information in their quarterly reports and their conference calls. The links to their slide deck and transcripts of their conference call on quarterly results are below. I encourage you to read them.

Some of the highlights of the presentation and call:
· Segment 2 – 5 installs up 10%
· Service annuity revenue down 4% in constant currency (CC) Note :(Xerox is global, and therefore has currency risk. The 4% decline is in constant dollars year over year (YOY)
· Pages declined by 5%
· Color pages grew 12% YOY
· Color equipment declined 21% CC
· Segment 1 installations declined 84%
· Office color MFD declined 21% with color printers declining 42%
· Balance Sheet improvements and expense reduction drove better margins and strong cash flow
· MPS has a $3.5 billion run rate and is growing

The CEO’s take on MPS:

Ursula M. Burns

About $3.5 billion on the MPS business the whole MPS businesses, large and small MPS business about $3.5 billion. It is growing it is a stronger growth engine or being impacted less than our equipment business. So it's an area of strength for us. By the way, these are global businesses as well. It's something that we practice around the globe. I think that's what you asked as well.

And on HP’s new MPS initiative:

Chris Whitmore - Deutsche Bank Securities

Just a follow-up on that, HP recently held a call which seemed to place a bull's eye on both your production business and your office business in terms of their expected growth going forward. What do are you seeing from HP, and maybe can you specifically address how you complete against Indigo in the high end production market.

Ursula Burns

What we're seeing from HP is their focus on our business, as you said, and they recently announced a managed print service offering that we've had in the market for quite a while. We are the leader there, as I pointed out when I was speaking earlier. So what we see in HP is trying to catch up with the position that Xerox has both in the production space, in the managed print services space, in the A3 MFP space across the board. We don't take them lightly, we are very confident based on our investments, our history, what we're doing in the marketplace today that we can effectively compete against HP.

Chris Whitmore - Deutsche Bank Securities

Are they competing more with price or more with service and solutions?

Ursula M. Burns

What we're seeing in managed print services they're competing right now with words so that's right now with an advertisement so we have to see that in the marketplace. As I said on managed print services we are very, very confident there. In the high end space, which I didn't answer to that portion of the question before, we are very, very pleased with iGen position, the install base, the activity we got in quarter two, very strong. We do not see them positioning, competing with us on price.

As you know, they are positioned in a different place in the marketplace our AMPBs and usage patterns for our iGen 4s are higher than their Indigo devices. But we have a breadth of portfolio that allows us to complete effectively and surround them, get right on top of them. So we're very - it's a tough market out there, we are very confident in the position that we have in both high end color and management services and A3 Office against HP and other competitors as well.

I encourage you to spend time reviewing the slides and to read the entire call transcript. You should also add yourself as a follower of this blog.

Link to slides:

http://a1851.g.akamaitech.net/f/1851/2996/24h/cacheA.xerox.com/downloads/usa/en/i/ir_Xerox_Second_Quarter_2009_Earnings_PresentationSlides.pdf

Link to call transcripts:
http://seekingalpha.com/article/150964-xerox-corporation-q2-2009-earnings-call-transcript?source=yahoo&page=1

Why All The To Do About Printed Page Coverage

For year’s copier vendors have been selling pages on a cost per page (CPP) basis without regard to an end user company’s page coverage. In so doing they have been able to achieve nice profit margins that allow them to provide quality service, an easy to understand pricing model, fund growth and provide a fair return to the stakeholders.

With copier unit placements dropping rapidly the traditional copier dealers are now moving into the printer world, bringing with them their CPP model. But many dealers are suddenly talking about page coverage area. After selling pages for years why worry about coverage area now. More important, how do you calculate coverage area? Do you take a month’s worth of samples and send them to a coverage area lab for analysis? Do we calibrate print management sales reps’ eyes to ensure they can accurately calculate coverage area?

I believe there are many players driving page coverage, all with a bias. Statistics tells us that with a normal distribution curve 95% of N fall within two standard deviations. Of the remaining 5 percent, half would fall into the “greater than expected” profit range and the other 2.5 percent would fall into the lower than expected range. Do you usually manage your process to the 2 percent?

Moreover, it appears as if there is more evidence that page coverage is not the big concern it is made out to be. Xerox, in discussing the hybrid pricing approach on their ColorCube 9200, estimates it can bring the average cost of color copies down by 62 percent.

So using my deductive reasoning, since Xerox has stated that a normal color page will be in the range of any other copier, but there will be savings with pages with less coverage, doesn’t is stand to reason that Xerox is counting on significantly more pages having low coverage? That is something to consider.

Here’s the link to this and other information on the ColorCube 9200, which does look like a nice device:
http://www.sfgate.com/cgi-bin/blogs/techchron/detail?&entry_id=39738

First HP Now Xerox: Is Tiered Color Pricing The Future of Color CPP?

HP started tiered pricing with their Edgeline product. With low enough color density your expense per color page could be as low as that of a black print. If the color increased you fell into the accent color range or professional color range, and were charged accordingly.

The tiered approach had a lot of fans on both sides of the transaction. The vendor selling the CPP had great comfort that they were being fairly compensated for the quantity of supplies they would be providing. The users of the product were comfortable that they weren’t paying too much for color prints, particularly on those documents with only a few words in color.

We’ll have to wait to see what path HP takes with the development of the Edgeline. Now that Xerox has entered the tiered color pricing game other OEMs are sure to follow. The link below will take you to an article on Xerox’s new ColorQube 9200 series and the “Hybrid” pricing approach.

http://socialcomputing.ulitzer.com/node/952771