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As HP Deal Looms, Xerox Partners Watch Print Supplies Business

‘I sell a lot of HP compatibles, especially on the black and white side, that I make good money on,” Jeff Bryant, vice president of operations with Xerox reseller CESCO Inc. outside of Dallas tells CRN.

In the wake of news that Xerox could acquire HP, Xerox resellers are keeping an eye on a lucrative line of business they have developed selling compatible ink and toner products to HP customers.

“I sell a lot of HP compatibles, especially on the black and white side that I make good money on,” Jeff Bryant, vice president of operations with Xerox reseller CESCO Inc. outside of Dallas, told CRN. “Xerox is pretty adamant, if you’re a reseller you can’t sell compatibles for Xerox products, so how are they going to handle all that for all the existing Xerox dealers who are making money today selling compatibles on HPs within their existing accounts?”

Troy Tafoya, president of Professional Document Solutions Inc., a Xerox reseller in Fort Collins, Colo., said that’s one area where HP has been losing money. Managed print competitors supply HP compatible ink and toner below what HP charges, saving the customer money per page, allowing Xerox and other re-sellers to use the competition’s product to make themselves a greater managed print income.

“We’ve been eating into their share, just like all their competitors have. HP doesn’t have the right culture and service organization and sales organization in the field to really grow that business. Its just kind of like, it’s a box,” Tafoya said. “If you have a company and I go in there and you have 30 HP printers and you have five MFPs, I replace the MFPs and I say ‘I tell you what. We’re taking care of the MFPs. I will take care of your printers as well.’ “

Tafoya said he does not think a merger will impact that business.

“Just the opposite . HP has programs on OEM supplies I assume we would get at compatible prices,” he said.

Same goes for Xerox Accredited Master Elite Partner Josh Justice, who owns Just Tech in La Plata, Md., said he doesn’t see the deal cutting into his revenue.

“JustTech recently became certified to use the HP Advantage program with Supplies Network that provides OEM toner at similar price points as compatible toner as long as you agree that the only toner you will use in the account is OEM,” he told CRN. “Our clients have had so many issues with compatibles including toner quality and defective cartridges that they have welcomed OEM toner at competitive price points.”

HP recently announced plans to overhaul the company’s longtime print business model. The move is partly a response to HP’s declining print supplies business, which it regards as the most lucrative side of a printer sale. HP CEO Enrique Lores – who took the helm on Nov. 1 after spending time running the printer side of the business -- spoke with CRN earlier this month about the upcoming changes to print’s sales model, calling it one area where “we need to drive more change.”

To that end, the company will begin offering printers configured two ways for every model.

“We will be offering what we call our flexible model, where customers will pay a slightly higher price for the printer, but they will have choice in terms of what supplies to use,” Lores said at the time. “And then we'll offer an end-to-end model, where the printer will be subsidized—the price of the printer will be lower—but that printer will only work with HP supplies. And we think that this choice we are going to be making available to customers will help us to grow overall—because customers will have more choice. But it also will help us to offer better value propositions to the customers that have higher usage.”

Xerox offered to buy HP last week in a stock and cash offer equivalent to $22-a-share, according to published reports. In return, HP shareholders would own 48 percent of the new combined enterprise. Xerox, which is led by CEO John Visentin, has also reportedly secured financing for the deal through Citi. CNBC reported Friday that HP put together an offer to buy Xerox two months ago, but the company balked when HP asked for more time to perform due diligence.

Xerox may offer HP four weeks to perform due diligence on the deal, as the two sides sort through what the combined company would look like and who would lead it following a merger, Bloomberg reported.

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