Shares of Xerox (NYSE:XRX) gained 15.7% in June 2019, according to data from S&P Global Market Intelligence. The maker of printers, printing presses, and related products and services expanded its decades-long partnership with HP Inc. (NYSE:HPQ), and that announcement alone was enough to lift Xerox shares by 7.6% in a single day.
These technology titans have been working together for decades, but the new partnership takes their cooperation to a higher level. HP will provide printer hardware for Xerox in exchange for advanced control software and toner flowing in the opposite direction. Moreover, HP and Xerox will cross-sell and support each others' products and services in the emerging device-as-a-service (DaaS) market, where businesses basically subscribe to a package that bundles hardware, software, and services under a single monthly (or quarterly or annual) bill. Xerox's management expects this solution to be a particularly big hit among small- to medium-business customers.
For the record, HP's shares also jumped 11.3% higher in June.
Xerox is also in the middle of a strategic reorganization, which aims to simplify the company structure and its unwieldy supply chain. The HP deal dovetails neatly into that process, as it lets one major partner provide the products and services that several smaller names managed in the past. A flatter chain of command and a much simpler collection of back-end software platforms should also help Xerox cut costs.
I wouldn't be surprised to see Xerox get the better end of this HP deal. After all, renewable supplies like printer toner tend to deliver richer profits than low-margin machines.
Investors appreciate Xerox's turnaround efforts, which have already delivered several earnings surprises in a difficult global business environment. The stock has soared 80% higher year to date.