MPS: A Tipping Point for 2013?

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Managed Print Services (MPS) has emerged as a new and effective approach for improving the productivity and reducing printing costs for organizations. I was reading this report, from Photozio Group, which gives an interesting depiction (figure below) on how the market share of Managed Printing Services is going to rise in the coming years.

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With the continuous adoption of growing technologies in MPS, the big names in the printers and copy machines businesses, such as Xerox, HP, Canon, Samsung, and Lexmark, are constantly upgrading their technologies to meet the customer's demand.

Xerox Corp. (NYSE: XRX) is one of those companies that is trying to transform itself into a service company from a mere printer sales company. I feel this is a good strategic move by the company, as the margins are higher in the services segment. Managed print services currently account for 50% of the company's revenue, and it has seen a ~146% increase in the number of users from last year (around one million users). To meet this fast growing demand in a better and more effective way, it has recently selected Cisco Systems for its data center solutions. The motive behind this deal was to deliver Cloud-based managed print services and enhance Xerox’s usefulness for end users, as well as the channel partners. Via this deal, Cisco will allow better administration over Xerox’s global print operations. Going forward, with its successful alliance with Cisco and its improved productivity, Xerox is planning to launch a new MPS integration platform. It will be introduced in early 2013, which will even include services from third-party vendors. Through this the company will be able to expand the base of its channel partners, as well as serve its customers more efficiently.

Another MPS player, Hewlett-Packard Company (NYSE: HPQ), is struggling hard to revive its position in the printing market. HP has a high exposure to Europe, generating ~37% of its revenue from this region alone. As a result, financial woes combined with the sluggish demand for printers in Europe have seriously affected its business, and it posted a decline of ~6% in its printing revenue. This is mainly due to strong competition and falling margins. However, HP is expanding its printing portfolio with new capabilities for achieving higher speeds. These new printers are targeted at the small businesses, and HP claims they deliver double the speed at much less cost with its new PageWide technology. In the MPS segment, HP is planning to integrate its Printelligent platform (acquired in 2011) into its direct MPS tools to enhance its channel offerings. The company will also include its software solutions with its MPS offerings to differentiate from its competitors. It would be really interesting to see whether or not HP's printing initiatives will turn things around for this beleaguered company.

Moving on to Xerox's other close competitor, Canon Inc. (NYSE: CAJ) is a leading name in printing services, focusing on the MPS segment. This company has a huge base of European channel partners, among whom many are already providing MPS. To further expand its MPS footprint and to broaden its dealer network, Canon recently launched a Managed Print Services Accreditation scheme. This scheme was launched across Europe in 4Q 2012 to develop high standards for Canon's leading partners. Under this scheme Canon partners will be benefiting from Canon's exposure in managed printing services. This can also be further developed into a joint business plan between the partners and Canon, in which they can share the targets for the year. This scheme is a win-win situation that should help both parties increase their MPS revenues.

Summing up, I think the upcoming year will be the tipping point where we observe massive adoption of MPS, as well as a huge upside in the sales coming from the MPS providers. This means now is a good entry point in the printing companies, and I am more biased towards Xerox, seeing the huge steps this company has already taken in this space. I anticipate its services segment to contribute more to its total revenue, which is expected to increase by ~3% annually for next five years, with MPS contributing ~65% by 2017.

One more reason which I feel will give a further upside to Xerox would be its cost restructuring plan. The company is cutting down 2,500 jobs from its global workforce in 2012; this will also include process automation and expansion of off-shore labor. This downsizing would be mainly from the services segment, and will result in cost savings of ~$130 million ($80 million in services and 50 million in technologies) during 2013.


ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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