Printer Companies Add Services To The Mix
September 29 2009 - 8:20AM
Dow Jones News
Printer companies are turning to high-tech services as a way to
inject excitement into a low-tech business.
On Monday, Xerox Corp. (XRX) said it was buying business
services provider Affiliated Computer Services Inc. (ACS) for
around $6.4 billion in cash and stock. The Norwalk, Conn.-based
printer giant is hoping to expand outside of its slow-growth core
business by adding more lucrative services, like custom book
publishing and major print run management.
Xerox isn't the only printer maker trying to goose sales by
tacking on professional services. Canon Inc. (7751.TO) and
Hewlett-Packard Co. (HPQ) recently struck a deal that lets H-P sell
more of the Japanese company's printers along with its own "array
of software and service offerings." Other printer makers, like
Hitachi Ltd. (6501.TO) and Lexmark International Inc. (LXK), have
added Internet connections to their machines to provide pipelines
for delivering services, like photo-book printing, directly to
customers.
Dressing up printer businesses with professional services takes
a page from the playbooks of tech giants like International
Business Machines Corp. (IBM) and H-P. These companies, which
started off as computer makers, are integrating professional
services with their hardware. That, in turn, is spurring demand for
their computers and servers.
The Xerox-ACS deal is "further validation of the business model
of offering integrated solutions consisting of hardware, software
and services," Kaufman Bros. analyst Shaw Wu said in an email
interview.
Already, the changes at printer companies are making their mark.
Last week, Palo Alto, Calif.-based H-P said the operating margin
for its printer division could be as high as 17% in fiscal 2010.
That's stronger than the 15.6% the division posted in fiscal 2008,
the last full year for which the company has reported results.
The new enthusiasm is driven by sales of wireless and
multi-featured printers, plus commercial and digital printing
services, H-P said. Among its plans: Opening what it calls a
"Printer Application Studio" that will let H-P printer owners
download specialized software onto their machines.
How well the industry's strategy will pay off has yet to be
seen. While no one sees the demise of paper, options to printing
are becoming more affordable and prevalent. Digital photo frames,
which eliminate the need for printed photographs, have become
popular gift items. And e-readers, like Amazon.com Inc.'s (AMZN)
Kindle devices, are making inroads with bookworms, even if they
haven't displaced the printed word.
On Monday, the stock market offered a cold assessment of Xerox's
deal. Xerox shares fell 14.3% to $7.68, though ACS shares jumped
nearly 14% to $53.86.
Still, analysts say printer businesses have plenty of kick in
them for the foreseeable future, particularly if they can work in
more services contracts.
In a note to clients, BMO Capital Markets analyst Keith Bachman
said Xerox's deal might encourage more consolidation. Xerox itself,
he said, may want to add more service companies to its stable as a
way of "bridging the gap."
-By Ben Charny, Dow Jones Newswires; 415-765-8230;
ben.charny@dowjones.com