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 user 2013-06-22 at 9:40:13 am Views: 74
  • #2049
    Xerox Copies IBM Model Of Pursuing Service Revenue

    For years, Xerox Corp. increased earnings by selling fancy copiers and expensive printers. Now, it is finding the paper trails these machines produce have a Golden lining.

    Taking a page from International Business Machines Corp., which resurrected itself by providing corporations with services, Xerox is pouring money into the business of coaching companies in managing their flow of documents. Xerox has been quietly building this initiative, dubbed Xerox Global Services, for the last three years.

    It is hoping to increase the unit's revenue 20% a year and double revenue in services to $6 billion by 2009. In its most recently closed quarter, Global Services revenue rose 36%. Still, it accounted for only 2% of the company's total revenue in that period. Flush with cash, Xerox is looking for acquisitions to expand the business.

    Mindful of its recent history, which includes an accounting scandal and huge losses that shook investor confidence, Xerox needs new avenues of growth. Shares of Xerox finished yesterday down 0.4%, or six cents, at $13.53 in composite trading on the New York Stock Exchange. While the stock is only 13% off its high of $15.54 set in February, it is still a far cry from the days in early 1999 when it traded around $60.

    "When we look at what our growth opportunities are in the future, two equally powerful opportunities are in the transition to color and services," said Anne Mulcahy, chief executive at Xerox.

    It isn't alone, however. Hewlett-Packard Co., Lexmark International Inc. and Ikon Office Solutions Inc., among others, are also looking at this market.

    Document companies are pursuing services because they bring a recurring revenue stream. They also hope services can help increase sales of their existing hardware. In Xerox's second quarter, the company credited services with three large equipment sales.

    But selling more equipment because of services isn't always a sure thing. Ask Mark Kent, vice president of content management at McGraw- Hill Construction, a unit of McGraw-Hill Cos. For the last four years, Xerox has scanned and archived 20 million documents for McGraw-Hill Construction on an annual basis. Before turning to Xerox, McGraw-Hill employed almost 160 people to scan the documents in five different plants around the country.

    Although McGraw-Hill Construction saves 25% of its operating expenses and will expand its services contract with Xerox, Mr. Kent isn't inclined to plop money down on Xerox equipment. "They've come to us several times. . . I've not been interested," he said of Xerox hardware, noting that his group doesn't have a need for new printers or high-end copy machines.

    Even before its recent focus on services, Xerox had managed companies' print shops and mail rooms. As customers wanted more, Xerox transformed. "Large customers are looking for more than a product provider," said Tom Dolan, president of Xerox Global Services. "We can provide a full suite of services that can take away a lot of the hassle of managing it."

    Helped by the influence of Chief Financial Officer Lawrence Zimmerman, who was a longtime IBM executive, Xerox has been barreling ahead with this new services strategy. Two years ago, Xerox struck up an alliance with Electronic Data Systems Corp., a Plano, Texas, computer-services company, through which Xerox brings its document expertise to EDS customers. Xerox said it will announce similar partnerships in the coming months.

    As for acquisitions, Ms. Mulcahy said Xerox will be focused in its pursuits. "We are looking for something that really has value," said Ms. Mulcahy. "We are not willing to pay a premium and get into a highly competitive situation." That is something that will resonate well with investors, who haven't forgotten Xerox's plunge into the red just four years ago.

    * Post was edited: 2004-09-02 09:53:00