With Apple announcing in January 2012 a whopping quarterly profit of $13.06bn, it is easy to jump to the conclusion that high-tech manufacturing and high revenues go hand in hand. But just a few years ago, companies such as Nokia, IBM, Philips and RIM, thanks to innovative technologies and a sought-after portfolio of products, were able to boast impressive financial results only to discover that they could suddenly fall out of favour with consumers, and thus see their profits quickly decline. Document management company Xerox Corporation is facing a similar reality.
In the 1960s, shortly after Xerox introduced its flagship product – the photocopier – the company’s revenues rose 10-fold. Investors, who for years had been supporting a costly R&D process, were now being praised for their patience. From desktop copiers to laser printers, each new Xerox product was a success.
In the following decades, despite the fact that Xerox would spend substantial sums of money on innovation and refining its products, the company's profit margins started to narrow. No matter how many different devices the company would introduce to the market, consumers seemed to struggle to think of Xerox as anything other than copy machine manufacturer. “This is both a blessing and a curse,” says Herve Tessler, corporate vice-president and president of developing markets operations at Xerox. According to Mr Tessler, Xerox’s achievements in the field of digital printing and software development are often overlooked. On the other hand, as Mr Tessler puts it, “there are only a few companies as widely known as ours”, and he adds that in many countries the name given to any copying device is a noun derived from the word 'Xerox'.
However, company executives are aware that even this high brand awareness cannot offset the situation in which consumers are increasingly relying on the electronic copies of documents. What is more, Xerox is facing growing competition not only from other manufacturers of peripheral devices, but also tablet and e-book makers, as well as cloud-based solutions providers. Mr Tessler agrees that the days of mass printing are gone but at the same time the future of carrying information will not be completely paperless.
“People will continue printing and copying, but in a more sophisticated way. They will require more refined devices, and that is exactly what we provide,” says Mr Tessler. “But more than anything, people will need information management, and that is what our expertise has been for many years.”
Market insiders agree that although the environment in which Xerox operates in is changing rapidly, it does not necessarily mean that the producers of the peripherals will be soon out of business. “I agree with Xerox’s view on the future of paper,” says Nigel Gibbons, founder and chairman of UniTech, a software developer that works in co-operation with Microsoft. Mr Gibbons says the idea of the ‘paperless office’ has been around since the PC boom that took place two decades ago, yet it is still hard to picture an office without copy machines and printers.
Nevertheless, rather than depending on the diminishing demand for hardware, Xerox is increasingly expanding its services division. “Just a couple of years ago, 80% of our revenues would come from selling hardware and 20% from providing services. Now it is split equally,” says Mr Tessler. The big change in the company’s income model came in 2009, when Xerox announced the $6.4bn acquisition of Affiliated Computer Services, an IT services and business process outsourcing provider.
Experts praise Xerox’s forays into services, noting that the company’s real strength lies in its expertise in the office hardware combined with business processing solutions. “Xerox has extremely strong services. Its document outsourcing business is growing, and it has a chance of leadership in managed print services when and if that market picks up,” says Martin Hingley, president and information and communications technology market analyst at ITCandor, an IT advisory firm.
Unlike other tech players such as computer giant IBM, which 10 years ago acquired PricewaterhouseCoopers’ consultancy business and since then has started to shift its focus away from hardware, Xerox’s executives are adamant about continuing to develop both arms of their company. “I firmly believe that neither now nor in the future will we step back from the hardware technology sector. If we continue to develop our services-led, technology-driven approach, we will succeed,” says Mr Tessler.
Instead, Xerox is increasing its activity in the emerging markets. For that reason, as Mr Tessler admits, he can rarely be seen in his office located in Uxbridge, on the outskirts of London. “Brazil, Russia, India and Mexico are the places where I spend most of my time. That is where we see skyrocketing opportunities. Mid-sized countries such as Turkey, Poland, Chile, Peru and Colombia are also attractive for us,” says Mr Tessler. He adds that what makes these places especially appealing to Xerox is the pace at which the public sector in the emerging countries is embracing new technologies.
At the same time, Mr Tessler admits that even for a company such as his, despite a presence in 160 countries, investing in some emerging markets can be challenging due to the complex tax regimes and the complicated labour regulations. Apparently if Xerox wants to modernise bureaucrats, it has to deal firstly with the traditional bureaucracy. Whether Xerox can appeal to the public as much as a company such as Apple remains to be seen.