Please ensure Javascript is enabled for purposes of website accessibility

COVID-19 Is Taking an Oversized Toll on HP and Xerox (and It's Going to Get Worse)

By James Brumley - Jun 23, 2020 at 8:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

People were already printing less than they have in the past, but working at home has proven just how unnecessary many paper documents are.

Although the advent of the personal computer and corporate networking a couple of decades ago was supposed to usher in the era of a paperless office, that didn't actually happen at the time. Indeed, those tools (and ever-cheaper printers) seemingly gave employees and consumers an unprecedented capacity to print pages, which they increasingly used all the way through 2012. Printing icons like Hewlett-Packard -- you know it better as HP (HPQ -0.39%) -- and Xerox (XRX) rode that wave to printing riches.

In 2012 though, personal habits finally caught up with technologies that negated the need for physical copies of documents. The world's number of printed pages started to decline then and is expected to continue shrinking into the indefinite future.

The coronavirus contagion that's kept millions of workers at home for weeks likely accelerated the downtrend of the world's need for printed pages. While technology market research outfit International Data Corp. (IDC) expects a slight rebound in printer usage next year before the decline is rekindled in 2022, that temporary optimism may underestimate just how well workers have retrained themselves to work without using a printer.

Woman in office using a photocopier or printer.

Image source: Getty Images.

Talking numbers

To answer the most burning question first: 3.2 trillion. That's how many pages the world printed in 2019, according to estimates from IDC. That figure's fallen an average of 1.2% every year since 2015. But the number is expected to fall much faster this year, tumbling 13.7% to around 2.8 trillion. The need for printed documents is radically diminished when you can't physically hand that piece of paper to a co-worker. IDC believes we'll see a reflexive rebound in printing next year, just because this year's apt to see such a sharp dip in its print tally. But through 2024, the anticipated decline in printing stands at an average of 4.8% compound annual growth rate (CAGR) through 2024. People, it appears, are learning to live without as many printed pages.

The tide obviously works against any company within the printing business, whether that organization makes printers, or the toners and inks needed to keep them working. None are hit quite as hard as the two aforementioned printing stalwarts, though: Xerox and HP.

Xerox is the most vulnerable for the obvious reasons -- it's the purer play. While it's tiptoed outside of conventional page printers for the office or home and now provides higher-level tech solutions like customized printing and digital document sharing, its core business is still printing, which the world just doesn't need like it used to. The company's got six consecutive years' worth of shrinking revenue to support that premise, and analysts see more deterioration ahead.

Xerox (XRX) revenue and earnings per share, past and projected

Data source: Thomson Reuters/Refinitiv. Chart by author.

Those same analysts expect earnings to hold steady once they normalize following the COVID-19 pandemic. But the downward trajectory of sales could make that profit recovery a tough trick to pull off.

Hewlett-Packard, or now HP, isn't nearly as exposed to the decline of printing, though it's still more than a little exposed. Of last year's $58.8 billion worth of revenue, $20.1 billion of it (or 34%) came from its printing business. In the meantime, it's not as if the computer business that makes up most of the other two-thirds of HP's business mix has been firing on all cylinders.

HP (HPQ) revenue and earnings per share, past and projected

Data source: Thomson Reuters/Refinitiv. Chart by author.

Like Xerox, the income growth projection is suspect in light of the fact that it's not likely to be fully matched by sales growth.

Merely merging doesn't help

Given the undertow of waning printer usage, Xerox's previous interest in a merger with HP makes sense. Alone, not even the two big titans of the business may be able to push through the challenge until paper-based printing at least stabilizes. Together, the combined companies might figure out a way to help one another survive.

Xerox's hope in that regard is only half-supported by the reality of the situation. Melding the two companies into one may not create much more in the way of operational efficiency, as both outfits run rather lean already. And, even if fiscal advantages were achieved by pairing HP and Xerox, the united organization is still fighting the same printing headwind. For such a merger to work well enough, a whole new kind of product or solution would need to be introduced.

In the meantime, IDC Japan's group manager Eiji Ishida put the matter in terms that should worry HP and Xerox by clarifying International Data Corp.'s findings:

"The decline of office print volume will have a big impact on total spending in the office print market. Hardcopy peripherals vendors will be required to make bold changes to their strategies based on future work styles in the next normal following the pandemic."

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HP Inc. Stock Quote
HP Inc.
HPQ
$33.45 (-0.39%) $0.13
Xerox Corporation Stock Quote
Xerox Corporation
XRX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.