Xerox Is On The Hot Seat But Not Alone

Xerox Friday stepped up and warned investors that it will not make its first-quarter 2009 earnings expectations, which are now expected to be in a range of 3 cents to 5 cents per share from a range of 16 cents to 20 cents per share.

The culprit? The economy, of course. The Norwalk, Conn.-based company said that total revenue in January and February fell 18 percent including a 5 point currency impact, mainly due to lower sales of equipment and printer-based supplies.

"When you're in an economy that's shedding millions of jobs, there's not a lot of demand for incremental new copier capacity," said Deutsche Bank AG analyst Chris Whitmore.

Both Fitch Ratings and Standard & Poor's subsequently cut their outlooks for Xerox from stable to negative.

"Although the higher-margin post-sale revenue is expected to outperform equipment sales, Fitch believes that there is increased risk to this revenue stream's ability to offset steep declines in equipment sales," the ratings company said in a note. "Prolonged material declines in post-sale revenue would indicate that the revenue stream is more susceptible to economic factors than previously anticipated."

To stem the bleeding, Xerox began taking measures to cut costs by $250 million in the fourth quarter of 2008, and it now expects to slash an additional $300 million in costs.

"We appreciate the company's continuous efforts to refine its cost structure and sales channel coverage but note the imaging and printing segment is one of the first to feel the brunt of macro-driven budget cuts," said JP Morgan analyst Mark Moskowitz said in a research note. "Given the sharp decline in business activity during the first two months of 2009, as shown in Xerox's guidance revision, we believe similar pain will be felt by others."

That pain is already being felt by others in the printing sector.

In a recent report, Gartner said that the pace of deceleration in the professional segment of the market caused sales of page printers, copiers and MFPs to decline 25.3 percent during the fourth quarter, 2008, as businesses and channels alike slowed purchases. What's more, Gartner believes that the market will not recover until 2010 as the economic uncertainty worsens.

Xerox is certainly not alone. Gartner found that virtually every vendor in the print space struggled during the quarter. Hewlett-Packard shipments declined 23.3 percent and suffered a 2 percent market share loss to 40.1 percent. Canon declined 2 percentage points in market share on a 36.5 percent unit shipment decline.

Out of the Top 10 vendors, only Samsung, Brother and Ricoh showed growth, ranging from 1 percent to 2 percent, according to Gartner.

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