From Products to Services: Impact on Imaging Stocks
The imaging market is shifting from being driven by hardware and supplies revenue to being a services driven revenue model. This fundamental shift will result in imaging firms looking much more like an IBM than the HP or Xerox of the past. In fact, Xerox already has a revenue to product revenue mix that almost mirrors IBM. I believe Xerox, like most imaging firms, has a stock price which is based upon a historical model of being a product manufacturer, rather than being a high-tech services firm.
Even highly profitable, cash rich companies like Lexmark are valued as hardware manufacturers, not high-tech services firms. (Lexmark has a profit margin that is almost the same as Accenture, and the cash per share is close to 50% of the firms stock price.) HP, Ricoh, Canon, Lexmark and Xerox all are pursuing significant growth in their services business. In fact, Xerox recently held an industry analyst day where they spent the entire day briefing analysts from around the world on their services business. While the firm certainly spoke about technology enablement, it’s one of the few all-day events I’ve been to where a manufacturer didn’t spend time speaking about products they manufacture.
The leading imaging firms including HP, Xerox, Ricoh, Canon and Lexmark all have major programs focused on building their services revenue mix. HP has a dedicated MPS division which services large accounts, Managed Enterprise Solutions (MES). Xerox is driving almost 50 percent of total revenues from services (and more revenue from services than hardware). Lexmark has recently acquired ECM firm Perceptive Software and the Business Process Management (BPM) software firm Pallas Athena in order to bolster their strong vertically centric services capabilities. Clearly, the race to services is on.
Certainly, there are a number of firms who continue to see themselves as manufacturers and who are only making small if any movements to the new services-led paradigm. But for the majority of the biggest and best firms in the industry, the transition to services has become key. The question is, will the investment community value them as services firms similar to IBM, or, as product manufacturers? What are the implications for those firms that remain myopically focused on the manufacturing model? Can they survive and thrive, or will they be acquired and marginalized? And what opportunities will this represent for the financial community in terms of capitalizing on take-overs and even shorting some stocks? Clearly, this is going to be an interesting, and for some, profitable time to place bets in the market for imaging stocks.
This excerpt comes from Photizo Group‘s report From Products to Services – The Impact on Imaging Companies’ Stock Price, which explains the industry shift from product-led to services led and the impact stock price valuations for both types of firms. The report will be available on the GLG Reports Storefront and the Photizo Group storefront soon. For more information about this report contact David Brown, dbrown@photizogroup.com, +1 859 846 9830 ext. 108
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