Xerox Targeting Printer/Imaging Services Market

(MoneyWatch)  Many investors are questioning the wisdom of the announced Xerox acquisition of Affiliated Computer Services. Word of the $5.6 billion deal sent share prices down by 14 percent. And yet new CEO Ursula Burns declared it a "transformational deal" that would put the company in hot pursuit of a $500 billion market. I normally heavily discount chief executive enthusiasm, but in this case, she's on to something.

The question is how to read past the words on the page. To talk of handling back-office operations for businesses and governments would put Xerox into broad competition with ... oh ... everybody. But remember the history of the two companies. ACS is an outsourcing company that already works in both the private and public sectors. From that view, the statement by Burns is another way of saying that Xerox won't have the ACS people suddenly brewing coffee instead.

The real interesting possibilities come from Xerox's position as a major imaging company. Rather than a me-too strategy (can I call it a photocopy approach?), look at it as a key acquisition that would open an arena of print, fax, scanning, and document management managed services. Something similar has become a critical strategy to HP's Imaging and Printing Group:

According to [IPG director of enterprise marketing Tom Codd], the managed printer services market is growing at 4 percent, while HP's effort is seeing 8 percent annual growth. "Roughly a third of the market is enterprise customers already doing managed [printer] services," he says. The rest of the enterprise market is split evenly between those unsure about making the switch and companies that don't see how the model would apply to their needs.

That's significant business available, and the acquisition could easily put Xerox well into the running.

Image via stock.xchng user kc0nvi, site standard license.