Monday, September 28, 2009

Xerox and the Future of Mail

Today, Xerox announced the purchase of Affiliated Computer Services (ACS) in a move that Xerox investors clearly found troubling causing the price to drop by 14%. This move should trouble postal stakeholders as well as it sends a strong message regarding what "the document company" thinks about the future of printed documents.

Xerox's business currently is focused on three business segments: 1) equipment for producing / scanning documents in an office; 2) equipment for producing documents in production settings; and 3) document management outsourcing. With the merger, Xerox's reliance on the future of paper documents drops from 100% to 67%. (See Xerox's presentation on the merger.) Steve Gerbel, founder and president of Chicago Capital Management called the merger a "transformative fix." Xerox's presentation to analysts, clearly expects that its future growth will come from the merged company's non-document based business and over time "the document company" will not be as dependent on paper documents.

Why does this matter to the Post? Now, the leading firm designing machines, processes, and software to handle paper documents will now help their customers move the document based, mail-delivered processes to electronic, Internet-delivered processes. Xerox's decision to seek a way to continue to serve existing customers as they abandon documents to the Internet suggests that senior management no longer sees growth prospects in print. The thinking behind Xerox's merger decision should provides postal stakeholders worldwide a wake-up call about the long term prospects of hard-copy delivery.

While some of the 14% decline in Xerox stock, reflects the dilution of current shareholder's holdings, I would argue that the size of the decline also reflects a major revaluation of the value of Xerox's document based business. If the financial market now thinks Xerox's document based business is worth less today than it was yesterday, then the financial market could soon realize that it needs to rethink the valuation of the printers, paper manufacturers, mailing equipment suppliers, and the document-delivery portion of the publicly traded Posts as well.

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