Who Will Be the Next Hewlett-Packard?

During the technology-stock bubble of the 1990s, it would have been a compliment to say a company had the potential to become the next Hewlett-Packard Co. That same line would have a very different meaning now.

Today, if someone called a company the next Hewlett- Packard, this would probably mean it is a prime candidate to book huge losses because of disastrous acquisitions. What might such a company look like? Consider Xerox Corp. (XRX)

At the start of 2007, Xerox had a stock-market value of $16 billion. Since then, the Norwalk, Connecticut-based printer and copier pioneer has paid about $9.1 billion to acquire 41 other companies. It has destroyed more value than it created. At $6.79 a share, Xerox’s market value is $8.6 billion -- equivalent to 71 percent of its common shareholder equity, or book value.

The most glaring sign that large writedowns may be needed at Xerox is a line on its books called goodwill, which is the intangible asset that a company records when it pays a premium in a takeover. Xerox’s balance sheet would have investors believe that its goodwill alone, at $9 billion, is more valuable than what the market says the whole company is worth.

Xerox’s goodwill obviously isn’t worth that in reality. Goodwill exists only on paper and can’t be sold by itself. It’s a plug number, defined under the accounting rules as the difference between the purchase price for an acquisition and the fair value of the acquired company’s net assets.

‘Reference Points’

Asked about the possible need for large writedowns, a Xerox spokeswoman, Karen Arena, noted that the company will conduct its annual goodwill-impairment test this quarter.
“Share price is just one of several reference points we use to validate our assumptions,” she said. “We also look to our operational results, including cash flows, revenue growth and profit margins.”
Most of the goodwill on Xerox’s balance sheet arose from the company’s $6.5 billion acquisition in 2010 of Affiliated Computer Services Inc., a provider of information-technology services. Xerox allocated $5.1 billion of the purchase price in that deal to goodwill. Xerox’s latest balance sheet also showed $2.9 billion of other intangible assets, the bulk of which are customer relationships acquired from Affiliated Computer.
Suspiciously high goodwill was the same indicator I pointed to in an Oct. 4 blog post suggesting that more large writedowns were needed at Hewlett-Packard. (HPQ) The Palo Alto, California-based maker of computers and printers traded for a significant discount to book value at the time, and its goodwill exceeded its market value by $7.5 billion.

Hewlett-Packard last week disclosed an $8.8 billion writedown of goodwill and other intangible assets from its 2011 purchase of the U.K. software maker Autonomy Corp. It said more than $5 billion of the charge was related to financial-reporting improprieties by Autonomy. The disclosure sent Hewlett-Packard’s shares down 12 percent in a day.

Regardless of whether the allegation proves correct, Hewlett-Packard paid way too much for Autonomy, which had a reputation for aggressive accounting long before it was bought. (Just ask the analysts at the financial-research firm CFRA in New York, who wrote 14 reports from 2001 to 2010 raising doubts about Autonomy’s accounting and disclosure practices.)

Hewlett-Packard had allocated $6.9 billion of its $11 billion purchase price for Autonomy to goodwill. The writedowns disclosed last week were only the latest of their kind. Three months earlier, Hewlett-Packard recorded a $9.2 billion writedown largely related to its buyout of Electronic Data Systems Corp. in 2008.

Dubious Leaders

A search for other companies with strangely high goodwill values turned up several notable examples. Credit Agricole SA (ACA), the French bank that trades for about a third of its book value, shows goodwill of 16.9 billion euros ($21.9 billion). By comparison, its stock-market value is 14.6 billion euros.
Telecom Italia SpA (TIT), which trades for about 60 percent of its book value, has goodwill of 36.8 billion euros and a market capitalization of only 13.2 billion euros. Fiat SpA (F), the Italian automaker, trades for less than half of book and shows goodwill of 10.4 billion euros -- more than twice its market value. Nasdaq OMX Group Inc. trades for 78 percent of book and shows $5.3 billion of goodwill; its market cap is $4 billion.


Those kinds of numbers -- where the balance sheets are clearly out of whack with market sentiments -- don’t necessarily mean the companies will be required to slash asset values. But they are strong indicators that big writedowns may be needed. The test under the rules ultimately comes down to management’s cash-flow projections, and whether they are strong enough to justify the goodwill on the books. That’s why goodwill writedowns can be an important signal about the future.
Xerox had an infamous accounting scandal more than a decade ago that resulted in a $10 million fine by the Securities and Exchange Commission. The penalty was a record at the time for an accounting-fraud case. Six former executives, including former Chief Executive Officer Paul Allaire, paid $22 million in SEC settlements in 2003. The last thing Xerox and its CEO, Ursula Burns, should be giving investors is a reason to wonder whether they can trust the company’s numbers.

The market has already decided it has one.

Canon to Combine $1 Billion Océ Purchase After Delay

Canon Inc. (7751), the world’s largest camera maker, will start combining Dutch printer maker Oce NV (OCE) with its own business after the acquisition was delayed by two years, according to the new head of its European division.

Canon’s $1 billion takeover of Oce, its largest ever purchase, was held up after the company failed to gain outstanding shares. Tokyo-based Canon finally acquired the remaining 10 percent stake from Orbis Funds at the end of last year, said Rokus van Iperen.

“We had a delay of two years in terms of integration,” he said today in a telephone interview. Canon today named Van Iperen as new chief executive officer for its business in Europe, the Middle East and Africa, taking over from Ryoichi Bamba, who is retiring. Van Iperen is the the first non-Japanese executive to lead Canon’s business in Europe.

Europe’s debt crisis and a stronger yen, which cuts the repatriated value of overseas earnings for Japanese exporters, has dampened Canon’s outlook. The company will maintain Oce’s manufacturing base in the Netherlands, as it seeks to move more factories outside Japan. The strategy serves as a “natural hedge to compensate for currency fluctuations,” van Iperen said.

Top 10 Tips for Implementing Managed Print Services

By Craig Le Clair
1. Know That Implementing Managed Print Services (MPS) Is a Work in Progress: Managed print services are not something you buy and install, but rather a life cycle that you engage in to gradually optimize a diverse and fragmented environment.
2. Assemble the Right Team: Focus on change management and governance by engaging IT, facilities and line-of-business owners early.
3. Balance RFP Criteria Among Device, Process and Management Criteria: Vendor selection should highlight key business drivers beyond cost and standard service-level agreement (SLA) goals.
4. Emphasize Print Policy Software: While policies for color printing get all the attention, the most dramatic savings can occur with global settings for duplex printing.
5. Avoid Billing Surprises: It's bad enough getting the bill, but it's even worse if you can't understand it. Firms should question providers about how billing works â€" particularly for global initiatives.
6. Don't Fall for Fluffy Treatment of Environmental Requirements: Make suppliers provide specific data on their environmental approach and focus on reducing pages printed, as this has by far the highest environmental impact.
7. Carefully Weigh Your Pricing Options: While all managed print services have some price per image (PPI) component, there's no "one size fits all."
8. Beware of Color: Users can get hooked on color printing, which will have higher PPI rates and can erode projected savings.
9. Resist the Tendency to Rush the Assessment Phase: Assessment sets critical goals such as realistic user-to-device ratios, as well as key metrics to monitor and improve service.
10. Get Ahead of Compliance and Security: It's only a matter of time before auditors focus on security and compliance holes in the office environment.

The independent managed print services approach

By: Louella Fernandes, Principal Analyst, Quocirca
Published: 25th November 2011
Copyright Quocirca © 2011
Nearly every enterprise – including commercial businesses, educational institutions and government organisations – relies on printing to support essential business processes, whether it is back-office operations such as accounting or payroll or front-office activities such as sales and marketing.

Regardless of how dependent an organisation is on printing, IT departments struggle with similar management challenges: providing reliable print services that meet organisational expectations while containing operational costs.

Too often, organisations own a broad range of print, copier, scanner and fax equipment, often from different vendors, requiring different software, consumables and supplies. Devices may often be outdated and inefficient, and few organisations know how many assets they have, how they are being used, and how much it costs to own, maintain and operate them.

This makes it increasingly difficult to optimise efficiency and control costs, and creates a huge IT and administration headache. Organisations facing staff shortages or lacking the correct technology expertise do not have the resources and skills to keep on top of print management issues, leaving them exposed to spiralling print costs, reduced productivity and increased risk due to unprotected devices.
This has prompted many businesses to move to a managed print service (MPS) to ensure more efficient and effective print infrastructure operation and management, from the office to the print room.

A managed print environment can deliver strategic business advantage, supporting cost reduction imperatives and environmental demands along with improved compliance and reduced risk. Today, the strongest uptake of MPS has been among large enterprises (1000+ employees). Our recent research suggests that half of European large enterprises have implemented or are piloting MPS.
The emergence of independent MPS providers that offer vendor-agnostic, best-of-breed technology, software and services is promising to expand the penetration of MPS beyond the exclusive domain of large enterprises.

This channel provides an important role in delivering impartial assessment services and unbiased MPS recommendations. Services such as multivendor break-fix, support and supplies replenishment enable organisations to protect existing hardware investments rather than moving immediately to a standardised print environment.

By retaining the flexibility to add devices from multiple vendors, independent MPS providers can innovate with the latest technology and introduce new capabilities independently of any single incumbent printer or copier supplier.

While hardware vendors will have a vested interest in moving the customer to a standardised environment, most of the major MPS vendors are able to support and manage a multivendor environment at the initial stages of an MPS engagement, sweating the assets as needed.
Not many organisations operate a standardised fleet at the outset. It is therefore vital to select an MPS provider that can provide an impartial assessment of the print environment.

However, if an organisation is planning to move to a standardised environment, a hardware-centric MPS may be the best approach. This can be supplied by a hardware vendor, SI or independent MPS provider. Many hardware vendors will use channel partners to deliver MPS midmarket.
Vendor-neutral providers can often negotiate the best prices on equipment and supplies, delivering quality at lower cost.

It is in the interest of an independent MPS provider to offer the right device for the purpose, regardless of brand. While a single-vendor strategy forces an enterprise to settle for a single vendor's offer for each area of the enterprise, a multivendor strategy enables a true best-of-breed approach across the organisation.

Pricing for traditional MPS contracts is often based on minimum volumes. We have found that is the top inhibitor of MPS adoption. Independent MPS providers often use different pricing models such as pay-per-print, so customers do not pay for pages they have not printed.

Although hardware vendors have been the predominant MPS suppliers for decades, the market is at a tipping point, evolving to encompass a wider range of providers. Independent firms should take advantage, particularly if they have the resources and infrastructure to design and deploy MPS.
This window of opportunity is limited, though: the technology that enables independent MPS providers to move up the MPS stack is also available to competitors such as SIs, managed services providers and hardware vendors, which are using the same or similar technology to move down the stack.

As MPS providers look to gain further mid-market traction, we expect further consolidation in the market. Specifically, we expect hardware vendors to acquire more independent providers to strengthen their multivendor MPS delivery and service capabilities. A report is here.

Manage what you measure

Manage what you measure




A print management strategy allows businesses to control expenses by outsourcing management of the printer fleet. The usage-based, outsourced model ensures they only pay for the prints they use and, best of all, there is no capital expenditure required since the agreement is to manage the existing fleet.



Companies cannot manage what they cannot measure. A managed print services strategy should begin with a comprehensive assessment of the current situation to uncover the total cost of ownership (TCO) of your office printing. This assessment provides both a baseline, to measure improvement, and a snapshot of the current situation to discover opportunities to improve. Ascertaining the current situation also gives organisations a benchmark against which to measure the effectiveness of their programme.



Proactively managing printers also enables companies to introduce carbon footprint reduction strategies. Reducing paper use not only reduces the volume of trees consumed, but also helps offset the rising cost of printer paper. There are several means of reducing paper use, including duplex printing and electronic forms among many others.



Some companies are concerned that optimised printing will negatively impact productivity. But a properly implemented managed print strategy boosts productivity. At the most basic level, employees face less distraction from printers that are broken or out of toner. Unlike most IT departments that simply respond to broken systems, a preventative maintenance strategy combined with an automatic supply restocking programme ensures your fleet is operating consistently. Re-deploying the right systems to high-volume locations can also enhance productivity.



Perhaps the biggest cost savings can be found in a more productive IT department. IT resources are costly and it doesn't make sense to use them to fix mechanical devices such as printers. Instead of fielding calls from frustrated users with printer issues, IT employees can focus on core initiatives like security and new software deployments.