Xerox Reports Profit Decline But Raises Outlook

"For many of our business clients, small to large, there remains a hesitancy to invest until more economic factors show signs of steady improvement," said CEO Ursula Burns in a conference call. "Customers are delaying spending on technology until there are stronger signs of economic improvement."

For the quarter, Xerox's net income declined to $123 million from $258 million in the same period a year ago. Sales were also down, falling 16 percent to $3.68 billion.

During the quarter, the printer giant was hard hit due to lowered demand for supplies, especially in heavily-documented-driven processes, Burns said, and was additionally impacted from lower channel equipment sales.

However, Burns spotlighted recent Xerox initiatives in a bid to maintain and increase market share.

"We've been successful in winning new business with managed print services that reduce client document cost by as much as 30 percent," she said. "We moved forward with 27 product launches this year and we expanded our distribution through new global imaging companies and partnerships with more resellers around the world."

The launch earlier this year of Xerox's ColorCube printer, which cuts cost of color printing by up to 62 percent, is showing early signs of success, noted Burns.

Larry Zimmerman, vice president and CFO, echoed Burns about the impact of the economy, but also pointed out some successes.

"Our machines in the field remain a positive indicator, growing 20 percent for color and 1 percent for total digital," he said.

During the conference, Burns discussed Xerox's $6.4 billion acquisition of business process outsourcing (BPO) provider Affiliated Computer Services last month.

He said BPO is largely made up of document-driven work and that such services are used in many industries that are still very dependent on documents, such as health care, financial services and insurance.

"Our customers' demands are evolving," she said. "Many are increasingly seeking service providers that offer a full range of solutions, from the management of their print services to management of work processes in their back and front offices."

The ACS acquisition is a huge growth catalyst in transforming Xerox into a new class of solution provider.

"In doing so, we become a $22 billion company, $17 billion of which is recurring revenue," said Burns. "We become a leading player in a $500 billion market, that's four times our current market, and is a market with a 5 percent annual growth rate."

Xerox's ACS buy was thought to be similar to two other deals involving hardware and service businesses -- HP's acquisition of EDS, and more recently, Dell's purchase of Perot Systems.

However, in an interview with Channelweb.com, Jim Firestone, president of Xerox's corporate operations, said his company's acquisition was not comparable to those deals, something that ACS president and CEO Lynn Blodgett reiterated during Thursday's conference call.

"This is not a play of us going against IBM, or HP, or Dell and the acquisitions that they've recently made," Blodgett said. "Those are plays in IT infrastructure and IT management services, software integration, system development. We're a great IT provider primarily in the U.S., but we are not doing this to attack IBM outside of the U.S. and try to go toe-to-toe with them in the IT business."

"We're going after BPO on a global basis," he said. "In that environment, the fact that Xerox has 500 of their largest accounts managed by these global account managers and has relationships at the senior executive level, we believe very strongly, and that's something we don't have outside of the U.S. It's a different play than going after IBM."

In spite of the dismal quarterly loss, Xerox slightly raised its outlook for the fourth quarter and full year.