Xerox's First Quarter Results Show Strong Sales

Xerox Corporation has announced first-quarter earnings that reflect strong sales of its colour systems and office digital products.

Xerox Corporation has announced first-quarter earnings that reflect strong sales of its colour systems and office digital products.

Total revenue for the first quarter was $3.8 billion, an increase of two per cent from the first quarter of 2003 including a currency benefit of five percentage points.

The company generated operating cash flow of $243 million, a year-over-year improvement of $84 million.

Last month, Xerox sold substantially all of its interest in Contentguard - a provider of digital rights management technology based on Xerox-developed innovation - to Time Warner and Microsoft Corp., resulting in an after-tax gain of $83 million.

The company reported first-quarter 2004 earnings per share of 25 cents including an eight-cent gain from the previously announced sale of almost all of Xerox's ownership position in Contentguard.

"We began the quarter with the introduction of advanced offerings in the office and production markets and we closed the quarter with strong sales that prove the effectiveness of our services-led value proposition - providing customers with practical solutions to reduce document costs and simplify work processes," said Anne M.

Mulcahy, Xerox chairman and chief executive officer.

Equipment sales grew 9% in the first quarter including a currency benefit of 5%.

Revenue growth continued to be effected by post-sale revenue declines from the company's older light lens technology.

The overall post-sale trend continued to improve as the revenue stream from new digital systems and services increasingly offsets declines from light lens.

Total first-quarter revenue from the company's targeted growth areas - office digital, production digital and value-added services - grew 9% year over year and now represents about 71% of the company's revenue.

Xerox also noted significant progress in its developing markets operations, which delivered total revenue growth of 6% in the quarter and 33% equipment sales growth.

"With about 55% of all equipment sales in the quarter generated from products launched in the past two years, it is clear that Xerox's investment strategy is winning in the marketplace," added Mulcahy.

Revenue from colour products grew 26% in the first quarter and is a key driver of Xerox's growth strategy as the increasing volume of pages printed on Xerox's colour systems flows through to post-sale revenue.

Colour revenue now represents 23% of Xerox's total revenue.

Production colour installations grew 27% in the quarter driven by accelerated demand for the Xerox Docucolor 6060 and 5252 digital colour systems.

Xerox has reported the 10,000th installation of its entry-level colour presses, reflecting the success of the Docucolor 2000 Series, which includes systems that range in speeds from 45 pages per minute to 60ppm.

Xerox also has been named the exclusive provider of digital colour printing technology for Consolidated Graphics' 65 nationwide commercial printing locations.

Consolidated Graphics has initially installed six Xerox DocuColor iGen3 Digital Production Presses and six DocuColor 6060 Digital Colour Presses.

In the first quarter, Xerox continued its market development for the iGen3 and expects momentum to build further at Drupa 2004, the world's largest graphic arts and printing event.

Installations of production monochrome products increased 28% primarily driven by the Xerox 2101 light production system and initial demand for the new Docutech 100/120 copier/printer, which began shipping in March 2004.

This mono digital system defines a new product category, delivering the kind of printing and publishing power previously only available on higher-end equipment.

Xerox said it has nearly doubled its portfolio of digital office systems in the last year and now claims the industry's broadest line of award-winning office products.

Installations of Xerox office monochrome systems were up 10% in the first quarter as demand increased from small and mid-sized businesses for the company's Workcentre M15 and PE16 desktop multifunction devices.

Office colour multifunction installations grew 45%.

Office colour printing installations grew 46% due to strong demand for the Phaser 8400 solid ink colour printer, which launched in January 2004.

Xerox has also launched its lowest-priced laser printers yet - the Phaser 6100 colour printer starting at $699 and the Phaser 3130 monochrome printer starting at $299.

"Our strong first-quarter installations activity in key markets is complemented by a comprehensive services business," said Mulcahy.

"The customer base for Xerox Global Services has significantly increased in the past year as more enterprises rely on the unparalleled expertise of Xerox people to manage the endless flow of paper and digital documents that are so essential in business today," she added.

First-quarter gross margins were 39.8%, reflecting an increased proportion of desktop office and light production equipment sales.

With this sale and other recent divestitures, Xerox is effectively commercialising its innovation while continuing to invest in the future through its commitment to research and development.

Commenting on the second quarter, Mulcahy said she expects consistent progress through continued equipment sale growth and increased revenue in key markets.

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