Friday, December 28, 2012

Is Xerox A Value Trap For Investors?

                   >>>>>from Saibus Research via <<<<<<<

We have been following Xerox Corporation (XRX) since the middle of January largely because David Einhorn (Greenlight Capital) had purchased 17M shares of the company in Q4 2011. We have stepped up our coverage of Xerox in October as the company's shares were trading at a 30% discount to book value. However, we are most certainly aware that just because a company's shares are trading at a low price to book value does not automatically make it a great value.

When we first started following Xerox, the company's shares were trading at a 5% discount to book in the middle of January. The primary reason why its price to book discount narrowed to a small 5% discount to book was due to investor enthusiasm surrounding David Einhorn's stake in Xerox through his Greenlight Capital hedge fund. Although Xerox is cheap by many traditional measures such as free cash flow yield, PE ratio and price to book, we have demurred from taking a position in the company because we have been concerned that it was a value trap. We previously covered why we saw it to be a value and in this report we will analyze why we think it may be a value trap.

Source: Morningstar Direct
Why Xerox May be a Value Trap:
Xerox's CEO Ursula Burns: Ursula Burns has been President or CEO of Xerox since April 2007 and during that time frame, Xerox's stock has registered a negative total return of 57%. Xerox earned $1.22 in reported EPS in 2006, the year before Burns became President. Despite spending over $4.1B in acquisitions and $2.6B on share repurchases, Xerox's Adjusted EPS is expected to be $1.08 and its reported EPS is expected to be $.85 after accounting for acquisition related intangible amortization and restructuring charges. Part of our apprehensiveness with regards to jumping into Xerox alongside Greenlight Capital is that we were concerned that the weak macroeconomic environment was an excuse for poor management and execution issues. We disagree with Oscar Schafer that Ursula Burns is a "tough, no-nonsense CEO" based on the performance of Xerox during her leadership of the company. We believe in calling things as we see them and we think it's appropriate to consider the poor results we have seen under Ursula Burns when evaluating her tenure.

Source: Morningstar Direct and Xerox's Most Recent Guidance
Xerox's Quality of EPS: 2006 was the last year before Ursula Burns was CEO or President and it generated $1.22 in GAAP EPS and $1.05 in Adjusted EPS. 2006 saw its GAAP EPS exceed its adjusted EPS as $500M in Tax Audit Benefits were partially offset by $254M in restructuring charges and $68M in litigation expenses. The company had no adjustments to EPS for FY 2007 and it reported $1.19 in EPS for the year. Unfortunately for Xerox, its EPS from 2008 to present has seen a significant level of adjustments to EPS in each year. 2009 was the year with the lowest level of adjustments ($.15/share) and 2008 was the highest ($.84/share). Of Xerox's $4.90 in EPS from 2008 to 2012, nearly $2/share was clawed back for its never-ending "non-recurring adjustment charges to EPS". 2012 promises to be no different as it will see about $.25 in non-recurring charges for restructuring and amortization of acquisition related intangible assets. At least Xerox's management is only targeting $.15/share in adjustments in 2013 primarily due to amortization of acquisition related intangibles.

Xerox's Revenue Growth: Xerox's year-over-year revenue growth has never exceeded 3% on a pro forma basis in any quarter since its 2010 acquisition of Affiliated Computer Services. That's not to say that the ACS deal was a deal from hell. In our opinion, we believe that deal was a lifeline for Xerox as ACS's strength in IT Services has offset the weak performance from legacy Xerox operations. Xerox grew its services related revenues by nearly 5% year-over-year in Q3 2012 even though it was faced with significant global macroeconomic headwinds. Unfortunately for Xerox, this was not enough to offset a 10% revenue decline from its products and supplies as well as the associated technical service, support and financing of its products.

Source: Morningstar Direct
Xerox's Guidance: Even though we have not taken a position in Xerox, we believe that covering the company is comparable to water torture. The reason why we feel this way about Xerox isn't because the stock has gone down by 22% since we began increasing our research resources on it, but because the company has been steadily reporting guidance that has been soft and sour. We think it is becoming a trend on Xerox's part to meet consensus adjusted estimates and to reduce forward guidance and also to announce "non-recurring restructuring charges" that are "excluded from adjusted EPS guidance". At the beginning of 2012, Xerox issued adjusted EPS guidance of $1.12-$1.18. As of its most recent quarter, the company has once again revised its guidance down to a range of $1.07-$1.09, down from $1.07-$1.12 in Q2 2012. Xerox recently announced guidance of $1.09-$1.15 for FY 2013, which was 3% lower than its original guidance for FY 2012.

Source: Xerox's 2012 Earnings Reports

In conclusion, we have taken a fair and balanced approach to analyzing Xerox. We previously evaluated what we liked about Xerox and we have now analyzed what we don't like about Xerox. One thing that Xerox needs to do in order to enable it to unlock shareholder value is replace Ursula Burns with an executive who knows what he or she is doing. Burns has been President or CEO for five going on six years and has been CEO for more than three years. During Burns' tenure as President or CEO of Xerox, the company's shares have declined by 57% while the S&P 500 has recovered its financial crisis losses and generated a total return of 12% during that time. Xerox's 57% negative total return paled in comparison to the 32% positive total return generated by the S&P SPDR Technology ETF (XLK). Although we are pleased to see Xerox make overtures to shareholders by increasing the dividend and share repurchase authorization, we are getting irritated with the sour notes that we've been hearing from management and we question whether Xerox has the right management team to enable it to unlock shareholder value.

Source: Morningstar Direct
Additional disclosure: Additional disclosure: This article was written by an analyst at Saibus Research. Saibus Research has not received compensation directly or indirectly for expressing the recommendation in this article. We have no business relationship with any company whose stock is mentioned in this article. Under no circumstances must this report be considered an offer to buy, sell, subscribe for or trade securities or other instruments.

Monday, December 24, 2012

Gartner Says India Printer Copier and Multifunctional Product Shipments Declined 4.7 Percent In The Third Quarter Of 2012

Gartner Says India Printer Copier and Multifunctional Product Shipments Declined 4.7 Percent In The Third Quarter Of 2012

Mumbai, India, December 20, 2012—
The combined serial inkjet and page printer, copier and multifunction product (MFP) market in India totaled 7,60,778 units in the third quarter of 2012, a 4.7 percent decline from the third quarter of 2011, according to Gartner, Inc. However, total end user spending stood at USD $246.5 million, up 31 percent from the same period last year.
“The festive season did not really resuscitate the printer copier market; as was expected by most of the major hardware providers. With besieged economic environment and green initiatives gaining growing importance, organizations adopted a ‘wait and watch’ approach on their IT spending for peripheral devices,“ said Amrita Choudhury, research analyst at Gartner. “Most of the technology providers suffered on the product front. However, services such as managed print services, cloud printing, and document outsourcing witnessed positive responses from the Indian market. The dissuasion from the home segment continued with shipments in the third quarter of 2012 declining 18 percent compared to the third quarter of last year, which indicates this will be a fast-declining market compared to the professional segment.”
HP maintained its leadership in the Indian printer, copier and MFP market (see Table 1), as its market share totaled 51 percent, followed by Canon with 23 percent market share. Epson accounted for 9 percent, while Samsung accounted for 8 percent of market share in the third quarter of 2012.
 India Printer, Copier and MFP Unit Shipment Estimates, 3Q12 (Thousands of Units)

3Q12 Shipments
3Q12 Market Share (%)
3Q11 Shipments
3Q11 Market Share (%)
3Q12-3Q11 Growth (%)
Note: Totals may not add up to 100 percent due to rounding
Source: Gartner (December 2012)
The Page A4 MFP segment grew 11.5 percent compared to the third quarter of 2011.The top three providers in the segment are HP with 51.8 percent market share, followed by Samsung with 22.1 percent market share, and Canon with 11.5percent market share. HP grew nearly 40 percent from the midsized business segment, Samsung recorded a stable performance of 26.6 percent in shipments from all businesses, while Canon suffered a major decline of 57 percent this quarter. The monochrome devices of this segment grew 12 percent coming from the impetus provided by the small business and government public sectors units PSUs, while the color devices suffered a decline of 20 percent compared to the third quarter of 2011.  
The Page A3 MFP segment increased 22.2 percent compared to the third quarter of 2011. Canon led the market with 23.2 percent market share, Ricoh took a step forward this quarter, ranking No. 2, accounting for 21.4 percent market share, while Konica Minolta ranked No. 3 with 18.4 percent market share. The monochrome segment accounted for more than 95 percent of the shipments in this segment, and grew 20.2 percent, similarly, color devices also showed 50.5 percent increase, mainly driven by the large businesses and reprographic production houses. Stable demand brought about by the replacement cycle and demand for managed print services also resulted in the healthy growth of this segment.
 The page printer market experienced a fall of 5.7 percent in the third quarter of 2012. HP dominated the market with 53.9 percent market share, followed by Canon at 28.8 percent market share, and Samsung with 9.9 percent market share in third quarter of 2012. HP grew 15.3 percent in the 11-20ppm printer segment. Canon and Samsung fell 23.3 percent and 34 percent in shipments from the 31-40ppm printer segment. Both color and monochrome devices in this segment declined 17.8 percent and 5.2 percent compared to the third quarter of 2011.
The Inkjet MFP market dropped 6.2 percent in unit shipment compared to the third quarter of 2011. HP suffered a decline of 29.2 percent compared to the same quarter of 2011, even though it accounted for 53 percent of the market share. HP focused on the larger businesses, and its newly launched DeskJet IA2515 was well received in the Indian market. Canon and Epson had a positive outlook for this quarter, with a 75 percent and 21.1 percent growth in shipments coming from the small businesses, accounting 27 percent and 16 percent market share.
The inkjet printers declined for seven consecutive quarters, as the market declined 24.5 percent compared to the third quarter of 2011. HP witnessed a shipment decline of 29.9 percent, and accounted for 47.4 percent of the market. Epson had a shipment decline of 19.1 percent, and had 38.5 percent market share. Canon, which had improved its inkjet printers in the second quarter, suffered a 17.9 in unit shipment percent compared to the third quarter of 2011, contributing to 14.1 percent of market share.
Additional information is available in the Gartner report "Quarterly Statistics: Printers, Copiers and MFPs, Asia/Pacific,3Q12 Update". The report is available on Gartner's website at

Friday, December 14, 2012

Does H-P need an investor like Icahn?

SAN FRANCISCO (MarketWatch) — As unconfirmed rumors swirled on Monday that investor Carl Icahn was buying up shares of Hewlett-Packard Co., its shares rallied, mostly on the prevailing theory that any activism at this point would be good to put pressure the embattled tech giant. 

But it’s still worth asking if indeed Icahn would even be interested in amassing enough of H-P’s HPQ +1.72%   stock to get any kind of a voice or seat on the board. If he did, would he help or hinder Chief Executive Meg Whitman’s effort at a turnaround? Read about H-P and Icahn rumors.
There are divergent views on this hypothetical question. It boils down to what should be done to turn around the fallen tech behemoth. If you are in the camp that believes that H-P’s parts are worth more separately than as a whole company, the presence of someone like Icahn, who was instrumental in the eventual spin-off at Motorola, now part of Google Inc., GOOG -0.10% , could be just the thing investors need.

Would Carl Icahn, or an investor like him, be a good thing for H-P?
Icahn’s office did not return a call seeking comment and H-P declined to comment to a MarketWatch reporter.
UBS analyst Steve Milunovich has been advocating that H-P needs to break itself up, and predicted in early October that such a possibility will be prompted by activists or private-equity investors. 

“In our view, full value won’t be realized by just improving operations — structural change is required,” Milunovich wrote in a note. “H-P with its fully developed enterprise and consumer businesses should split up in order to realize greater value.” Read The Tell about Milunovich’s view.
H-P, though, has not embraced this point of view. Whitman appears to be trying to focus on getting the company’s various operations in order, at the same time that the personal computer business is getting hit by the growth in tablets and smartphones. Under the very brief tenure of former CEO Leo Apotheker, H-P looked at possibly spinning out or selling its PC business. He also killed Palm, which H-P purchased to get a foothold in tablets and smartphones. Apotheker wanted to grow software instead. Under Whitman, H-P decided to keep its PC business in tact. 

An outside investor like Icahn — or someone else — could argue that the corporate business, which includes services, servers, and software, does not need to be attached to PCs and printers. Other have argued, however, that the company gets more purchasing power when buying for all the hardware businesses at once. 

Some have also used IBM Corp.’s IBM -0.12%  turnaround, which mostly kept the tech giant together, as an example that H-P should follow. Milunovich argued that IBM is the wrong model in H-P’s case. Because H-P has fully developed consumer and printer businesses, it should be split apart. It’s also worth noting that if IBM is the model some would like to mirror, IBM sold its PC business to Lenovo of China in 2004. And before Lou Gerstner started the turnaround of IBM as its first outsider CEO, the company had already spun out its printer business, which is now Lexmark International Inc. LXK -1.32%
The other issue, however, is that H-P already has an activist investor on its board, albeit a silenced one. Ralph Whitworth of Relational Investors LLC, joined H-P’s board in November 2011, after he had accumulated over 17 million shares of the company. As part of the deal, Whitworth agreed not to publicly seek H-P’s sale or merger or spin off any of its assets.

Would another activist investor like Icahn want to get involved with a company that already has one activist on its board? 

Eric Jackson, founder of Ironfire Capital, said H-P is a tough situation for any activist investor.
“It would be tough for anyone right now,” Jackson said in an e-mail. “There are no silver bullets.” He also added that he did not think that “the styles of Icahn and Whitworth mesh well either.”
If Icahn is actually buying up H-P shares, investors will learn soon enough. But whether he or any other daring activist, could be an agent of major change, as some would hope, is a bigger question.
Therese Poletti is a senior columnist for MarketWatch in San Francisco.

Tuesday, December 11, 2012

Xerox GIS Division Acquires Zoom Imaging of California

SACRAMENTO, Dec. 10, 2012 – Global Imaging Systems (GIS), A Xerox Company (NYSE: XRX), acquired California-based Zoom Imaging Solutions, Inc. a leading provider of business solutions for central Calif

"By adding Zoom Imaging Solutions, GIS continues to build its nationwide network of locally-based companies focused on catering to the specific needs of area businesses and simplifying the way they work with documents on a daily basis,” said Michael Pietrunti, senior vice president, Acquisitions, Corporate Service and Marketing, GIS.
Further expanding Xerox’s distribution in Calif., Zoom Imaging Solutions will immediately add Xerox’s full range of office and printing technology and managed print services to its portfolio. The company has distributed Toshiba and Lexmark copiers, printers and multifunction devices in addition to providing document management and managed print solutions.
Gary Johnson will remain as president. The company has 10 locations in central Calif.

About Global Imaging Systems
Global Imaging Systems, A Xerox Company, is made up of regional core companies in the United States that sell and service document management systems such as printers, copiers and multifunction devices; network integration services; and electronic presentation systems. As an office technology dealer, Global Imaging sells products from various suppliers including Xerox, Sharp and Konica Minolta. Xerox acquired Global Imaging Systems in 2007 and operates it as a wholly owned subsidiary within Xerox’s North American operations.

About Xerox

With sales approaching $23 billion, Xerox (NYSE: XRX) is the world’s leading enterprise for business process and document management. Its technology, expertise and services enable workplaces – from small businesses to large global enterprises – to simplify the way work gets done so they operate more effectively and focus more on what matters most: their real business. Headquartered in Norwalk, Conn., Xerox offers business process outsourcing and IT outsourcing services, including data processing, healthcare solutions, HR benefits management, finance support, transportation solutions, and customer relationship management services for commercial and government organizations worldwide. The company also provides extensive leading-edge document technology, services, software and genuine Xerox supplies for graphic communication and office printing environments of any size. The 140,000 people of Xerox serve clients in more than 160 countries. For more information, visit, or  For investor information, visit

Media Contact:
Becky Dziedzic, Xerox, +1-585-423-2623,
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