Service Revenues Increasing at Xerox, Seeks to Expand Channels for Printer/MFP Offerings

At its annual investor conference today, Xerox reported that its revenue stream is shifting so that a higher percentage of revenue is obtained through services, such as those provided by its Affiliated Computer Services’ business-process outsourcing, and its own Managed Print Services. It’s thus forecasting its services revenue to grow from 6 to 8 percent by 2012. It also expects to continue to grow its printed color page volume, and will expand its printer/MFP hardware distribution to global developing markets and mall and mid-size businesses.

Half of Xerox’s revenue is now derived from services involving business-processing and IT outsourcing provided by its Affiliated Computer Services acquisition, by Xerox Managed Print Sources, and by customers’ outsourcing of their printing and imaging to Xerox. Xerox puts the total market opportunity for these services at $500 billion. Some recent service signings include a 10-year, $500 million contract to manage clinical and technology applications for clients using remote hosting services, and a $200 million, five-year agreement with MGM Resorts International under which Xerox will provide IT services. 

For 2011, the company is expecting revenue growth in the range of 6 to 8 percent, and earnings per share of 89 to 94 cents. For 2012, it’s projecting revenue growth in the range of 4 to 6 percent, with an increase in earnings per share of $1.18 to $1.28. “Over the next five years, we expect to generate more than $10 billion in free cash flow, reflecting the benefit of our annuity-driven earnings growth and continued operational improvements,” noted Xerox’s Chief Financial Officer Luca Maestri. The company expects to use some free cash flow to invest in about $300 million in acquisitions this year, and projects that this added capability and channel expansion will deliver 1-2 points of revenue growth.

In the printer and imaging segment, while color page volume currently accounts for 25 percent of the total number of pages printed by Xerox systems, color page growth continues to increase at 9 percent per year. The firm will seek to increase its printer/MFP offerings through acquisitions, including recent acquisitions in Europe. It will also seek to expand access to selling its its printers/MFPs and related services to small and mid-size companies, a strategy it also recently bolstered with recent acquisitions in Europe and the United States.

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