Xerox Corp. is heading into autumn after a busy summer. In addition to launching new hardware and software and tweaking its brand strategy (it bid farewell to the decade-old "The Document Company" tag line last week), Xerox also reported strong second-quarter results that prompted it to raise full-year earnings expectations from 67 to 72 cents per share to 80 to 84 cents per share in late July. The Stamford, Conn., company, under the direction of company Chairman and CEO Anne Mulcahy, is riding that momentum into the second half of the year and homing in on one of Xeroxs most burgeoning businesses: Global Services. eWEEK Executive Editor/News Michael R. Zimmerman caught up with Mulcahy at the companys analyst meeting in New York last week to get her take on services and the industry.
In March you talked about three areas of opportunity for Xerox—production, office and services—and said those three areas represented 70 percent of Xeroxs revenue. Can you break that out and tell us your long-term and short-term goals for each?
Yes. So, $16 billion in total. When we talk about 73 percent of our revenues coming from those areas its the digital businesses of office and production, so its all digital revenues associated with it, both equipment and post-sale. All of our managed services revenues sit within those office and production business segments. If you were to pull them out, our services business would be $3 billion. But we kind of integrate them in because theyre a technology enabled by office and production. So its not a hardware split. Its actually office services, production services and then business innovations services, which is today about a $300 million business but growing. Our last quarter was 36 percent growth. So a very rapidly growing and important area of the business to us that is also becoming the front end for a lot of major client deals as well. Right now our office business represents about $7 billion. Our production business is about $12 billion. And our services has been at about the $3 billion level.
And how do you want to see those go forward?
Weve talked about 5 percent growth levels for the near term for the total business, and thats a combination of relatively modest growth in areas like the office business. Color being a source of growth in both office and production growing at double digits. And services obviously compounding growth thats offsetting the modest growth of the office and production businesses. So services will clearly be the fastest growing part of our business, the innovation services. Colors not far behind in terms of the technology transition as well. So those will be the major driving forces for the growth delivered by the company.
How much of the services push is the result of the overall downturn in IT spending?
I dont think its a cause and effect. Its more of a strategic change in the way we go to market. I dont think weve looked at it and said, "Because theres not a lot of capital spending." I think weve looked at it and said, "What are the strategic growth opportunities that we can build off our core competencies?" And those really have pointed toward digitizing and colorizing the office; the new business of printing, which is really the whole offset transfer opportunity; and then the innovation services, which are really the document-intensive business process deals that weve talked a lot about this morning. So Id say its strategically pointing at areas of growth that can really lead the portfolio. Certainly we do a lot more with customers on a services-type contract versus a capital acquisition contract because I think that is more and more becoming a customer requirement. So we go to market with them with a services approach versus a buy the equipment first and get the services separately.
So, down the road, do you want services to become a major part of your company, more than the [current] $3 billion [it accounts for]?
And the reason?
Because its meeting customer requirements. Its really what our customers want. They want us to come to them with an integrated offering and solve business problems that need to be services-led instead of technology-led.
But theres an overhead issue as well. Services dont involve things like parts, supplies and products.
Its a great business model. The annuity kind of business model is certainly a powerful one for the business. And yeah, its not as asset-intensive, certainly, as the hardware side of the business. But quite frankly, I think its a great portfolio to have a strong technology component to differentiate you from just any other generic services company.