Xerox (NYSE: XRX) has come a long way from the old copier manufacturer of yore. Equipment sales are now almost an afterthought for the company, and most of its business comes from support services these days.
That's not a bad thing at all, as services tend to carry higher margins than hardware sales. And it gets even better: Through the newly acquired ACS division, which effectively doubled Xerox's revenues in one fell swoop, the company plans to become a force in cloud computing services. ACS is tapping into the cloud infrastructure laid down by virtualization expert VMware (NYSE: VMW), storage maven EMC (NYSE: EMC), and networking giant Cisco Systems (Nasdaq: CSCO) to create an "infrastructure on demand" type of service. "We run the IT infrastructure for you from places like Bangalore or Topeka, and you develop and run your own applications on it," with high-priced but handy support service contracts attached.
That initiative is still in its infancy, though. In the just-reported second quarter, Xerox saw non-GAAP sales -- accounting for the ACS purchase in February -- grow only 2% over the year-ago period to $5.5 billion. Earnings, on the other hand, took a healthy leap from an adjusted $0.18 per share in the second quarter of 2009 to $0.24 per share this time. "We've made excellent progress in scaling our services business and strengthening our leadership in the marketplace," CEO Ursula Burns said.
The "new" Xerox is taking on a whole new set of rivals, trading the old Canon (NYSE: CAJ) and Lexmark (NYSE: LXK) crowd in for a closer comparison to large business service providers. It won't be any easier than the plain old office-supply operation, but business services are in right now and will continue to provide value and opportunity for many years to come. I think it's a serious upgrade, and this quarter's bottom line underscores my point.
Is Xerox headed in the right direction or is there something to be said for tradition and experience? Discuss in the comments below.
