Patriarch,
I've been a bottom fisher in techs for years also, with good results. Xerox was added to my screen at the 20 level. Have not bitten yet, doing some DD. Thought you might be interested in this article from today's WSJ...
Regards,
John
Xerox Faces Mounting Challenge,
Especially in Digital-Copier Market
By JOHN HECHINGER
Staff Reporter of THE WALL STREET JOURNAL
Ron Beliveau, a regional controller with First American Title
Insurance Co. in Phoenix, recently shelled out $130,000 for four
corporate copy machines and other equipment. But he didn't
even consider Xerox Corp., the company whose name is
synonymous with copying.
Neither did Peter Santora, purchasing director with Josephthal &
Co., a New York securities firm. Both chose rival Canon Inc., a
Japanese company that has made a big push into the office
copier market this year.
"Xerox has the outstanding name," says Mr. Santora, whose
company signed a $27,000-a-month leasing deal with Canon.
"But over the past few years, they've kind of let things slip."
Last week, Xerox shocked Wall Street
when it issued a warning that its
fourth-quarter profit would fall far short of
expectations, citing a host of problems.
Among them: corporations putting off
technology spending because of worries
about year 2000 glitches, turmoil in
Brazil and a poorly executed reorganization of its sales force.
Far down the list of reasons Xerox gave, and mentioned only
briefly: intensifying competition. Yet some analysts say that is a
more serious long-term problem for the company.
"They are losing market share," says Philip Rueppel, an analyst
with Deutsche Banc Alex. Brown. "It concerns me more than it
concerns management."
Mr. Rueppel and other analysts are focusing on rivals' efforts to
cut into Xerox's domination of the corporate copy machine,
especially the newer digital copiers.
These computerized copiers, often connected to a network of
personal computers, are faster and more reliable than the
old-fashioned stand-alone variety. Mid-range models sell from
$3,500 to $50,000 and can spew out anywhere from 20 to 60
copies a minute. Bigger and faster machines can cost hundreds
of thousands of dollars.
In March, Canon introduced a new line of digital copiers, beefing
up its ImageRunner series, which targets the midrange corporate
market. Canon executives say they are shipping 10,000 units a
month -- more than Xerox, in comparable lines -- becoming No. 1
in volume in the fourth quarter to date. "We are now able to
compete with Xerox in ways we haven't been able to compete
before," says Timothy Andree, a Canon USA vice president.
Independent statistics for 1999 to back up Canon's claim couldn't
be found. In 1998 in the U.S., Xerox was the No. 1 seller of
black-and-white digital copiers, with 37% of new copier sales, or
135,000 units, according to International Data Corp. But many
analysts say Canon, which ranked No. 4, could take the top spot
this year.
Richard Norton, president of DocuTrends, a Saratoga, Calif.,
consulting firm, is one. "They just went gangbusters," he says,
despite the fact that Xerox had been in the market with digital
copiers a couple of years before Canon. "Xerox shouldn't be
ending up in second place."
Gil Hatch, president of Xerox's office-systems group, says talk of
Canon's challenge has been overstated -- in part because the
digital market is growing so fast; he expects Xerox sales in the
segment to be up 40% this year from 1998. "The digital market is
exploding," he said, adding that "our sales remain robust."
In the first half, he says, internal projections show Xerox's share
had risen to the mid-40% level. In the second half, however, he
says the company felt the impact of new competition. Mr. Hatch
says second-half market share will slip slightly, especially in the
higher-end printers that make 60 to 92 pages a minute. But he
says that's because the company had such a dominant grip, with
more than 60% of the market.
Mr. Hatch won't provide specific volume figures. But of Cannon's
claim that it is shipping 10,000 midrange digital copiers a month,
he said, "We sell more than that."
The digital market is key, because analysts expect digital
copiers, which have higher profit margins, to take over the $10
billion black-and-white digital office copier market in the next few
years.
In 1998, digital copiers accounted for about 19% of copiers sold
in the U.S., according to IDC. But the research firm expects
digital copiers to account for 88% of the market by 2003. Xerox,
expected to report more than $19 billion in revenue this year,
says digital copiers made up 53% of its third-quarter sales.
Jay Ingalls, research director with information-technology
consultant Gartner Group Inc., says Xerox is facing threats on all
levels of its business.
In January, Canon is introducing a challenge to Xerox's
near-domination of high-volume digital copiers. These machines,
the Bentleys of the copier market, are typically found in the central
reproduction departments of major corporations. Canon's
machine will be made by Heidelberger Druckmaschinen AG, a
German printing-press maker, which earlier this year bought the
copier design from Eastman Kodak Co. Last year, Xerox's
high-end DocuTech printer line had $2.3 billion in revenue, more
than 10% of Xerox's total revenue.
Mr. Ingalls points out another treat to Xerox: the convergence of
copiers and printers, which are now often used for many of the
same tasks. Printer makers such as Hewlett-Packard Co. and
Lexmark International Inc. are poised to introduce products to
challenge Xerox's less-expensive machines.
In its warning last week, Xerox said it expects fourth-quarter net
income will be 40% lower than analysts' consensus expectations
of 66 cents. At 4 p.m. Thursday on the New York Stock Exchange,
Xerox shares closed at $22, down 12.5 cents and far below their
52-week high of $63.9375.
This week, analysts slashed their earnings projections. It was the
second time in recent months that Xerox told analysts to scale
back their estimates for the fourth quarter. Wall Street now
expects Xerox to earn $1.95 a share this year, down 16% from
1998, according to First Call/Thomson Financial. Next year,
analysts project the company will earn $1.98 a share, only a 1.5%
increase over 1999.
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