IoT
IoT
IT Leadership // IT Strategy
Commentary
2/1/2016
11:06 AM
50%
50%

Xerox Corporate Split Reflects Changing Industry Dynamics

Xerox announced that the company will split into two separate public companies, one focusing on hardware and software, the other dedicated to professional services.

8 Ways Cloud Storage Delivers Business Value
8 Ways Cloud Storage Delivers Business Value
(Click image for larger view and slideshow.)

What happens when the market value of a company is less than half its annual revenues? If it's Xerox, it splits itself into two pieces in an effort to let each half become much, much more profitable.

Xerox announced on January 29 that the company will break itself into two publicly traded companies: a Document Technology company, which retains all the hardware and software that are the core of Xerox's traditional business; and a Business Process Outsourcing company, based around Xerox's professional services organization, much of which was acquired as part of the Affiliated Computer Services Inc. purchase in 2010. The Document Technology company had approximately $11 billion in revenue in 2015, while the Business Process Outsourcing company had approximately $7 billlion in revenue last year.

In a prepared statement, Xerox chairman and CEO Ursula Burns said, "These two companies will be well positioned to lead in their respective rapidly evolving markets and capitalize on the opportunities that now exist to expand margins and increase market share." The transaction is designed in a way that shouldn't have any tax implications for the company or its shareholders, the most active of whom is Carl Icahn, who will have control of three board seats in the new Business Process Outsourcing company.

The company aims to complete its separation by year's end, according to the statement, which noted: "Until the separation is complete, Xerox will continue to operate as a single company, and it will continue to be business as usual for our customers and employees."

Todd Thibodeaux, CEO of IT industry trade association CompTIA, told InformationWeek in a telephone interview that the Xerox move is part of a trend among companies moving to concentrate on business strengths. "It's a continuation of a trend that goes back to when IBM started to shed divisions," Thibodeaux said, pointing to the printer and PC divisions that IBM shed years ago. Speaking more directly about the Xerox split, he said, "We've seen companies acquire services and then decide that they can operate better with just the hardware."

More recently, Hewlett Packard completed a corporate split on November 1, 2015, that had been in the works for a year.

(Image: Xerox)

(Image: Xerox)

Thibodeaux said that he sees the Xerox split as nothing but good for the company's customers. "The ability is there for [customers] not to feel tied to a single vendor when there's a lot of innovation going on, so they can get a wide range of services and look to a wide range of vendors for document management, ERP, or even hardware."

Asked whether he thinks the breakup trend among tech stalwarts like Xerox will continue, Thibodeaux said that he sees Xerox as one of the last companies of its size and age to go through the process, simply because so few companies remain eligible for the split. "We're running out of big companies that are open to splits like this. Would SAP be one?" he wondered.

Xerox chairman and CEO Ursula Burns

(Image: Xerox)

Xerox chairman and CEO Ursula Burns

(Image: Xerox)

Thibodeaux also pointed out that more than size and product mix come into the equation when companies consider splitting up. "It also deals with how companies relate to their channels," he said. "Dell has been experimenting with something like this. When you really get big in services you're going to put yourself into competition with your channel," he said.

Ultimately, Thibodeaux sees this as a positive development for Xerox. "This is an exciting opportunity for a company this old. A lot of companies, when they get to this point in their history, are reluctant to do this sort of thing. They're a very good brand, and I'm excited to see what they're going to do next."

Are you an IT Hero? Do you know someone who is? Submit your entry now for InformationWeek's IT Hero Award. Full details and a submission form can be found here.

Curtis Franklin Jr. is executive editor for technical content at InformationWeek. In this role he oversees product and technology coverage for the publication. In addition he acts as executive producer for InformationWeek Radio and Interop Radio where he works with ... View Full Bio
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
batye
50%
50%
batye,
User Rank: Ninja
2/8/2016 | 8:27:16 PM
Re: A trend is developing
@SaneIT, I think you are right... 
SaneIT
50%
50%
SaneIT,
User Rank: Ninja
2/8/2016 | 9:26:56 AM
Re: A trend is developing
I think spinning off PARC was a very good idea for Xerox but they don't seem to have the push behind them that would make them the first name that comes to mind for technical innovation, they play a bit of a supporting role now.  I think Xerox professional services may end up in a similar boat, being able to say they can back you up but not driving the process development. 
batye
50%
50%
batye,
User Rank: Ninja
2/3/2016 | 10:05:02 AM
Re: A trend is developing
@SaneIT, interesting observation, but I would say Xerox do know the market and the field.... it just big changes happening in the field...
SaneIT
50%
50%
SaneIT,
User Rank: Ninja
2/3/2016 | 8:11:16 AM
Re: A trend is developing
I see them as resources who managed to grow business decades if not a century ago but I wonder how much of what they do can be used by smaller companies starting up now.  I'm positive that some of their process and business practices will work and would benefit smaller companies from a learning standpoint but operating like a 100 year old juggernaut isn't working for them right now so there are going to be some things they do that absolutely won't work for anyone in today's market.  They bring along lots of experience but they can't give you their market share or their capital. 
batye
50%
50%
batye,
User Rank: Ninja
2/3/2016 | 4:00:40 AM
Re: A trend is developing
@SaneIT, interesting point, I would say - how I see it... something is happening... I think it is good... but time will tell...
SaneIT
50%
50%
SaneIT,
User Rank: Ninja
2/2/2016 | 10:14:32 AM
A trend is developing
"and a Business Process Outsourcing company, based around Xerox's professional services organization," 

This is the third very large company that I know of doing something like this, either spinning off or selling off a Business Process company.  I'm not sure if the trend is good or bad, on one hand you have decades of experience running a very large company and solving problems in everyday business but on the other hand these companies are stumbling under their own weight so those processes aren't saving them.
William Terdoslavich
50%
50%
William Terdoslavich,
User Rank: Author
2/1/2016 | 10:28:00 PM
Pure Play
Investors don't like "comprehensive companies" that try to offer all things to customers. Invariably, some units lead and others lag. Ditch the laggards and you are left with a smaller, more profitable company that can command a higher stock price. Such firms are also easier for investors to understand.

With that said, people are wondering about IBM in this light. IBM has sold off units, but it won't go as far as splitting itself up into two or three companies to "unlock value" for investors. Big Blue is betting on new lines of business growing faster than legacy units. But those new lines of business are not growing fast enough to offset even sharper declines on the legacy side. 
danielcawrey
50%
50%
danielcawrey,
User Rank: Ninja
2/1/2016 | 4:14:19 PM
Total sense
This move makes total sense. These days, it seems larger corporations are reconizing that being huge isn't always an advantage. This has been especially true in technology, where different structures are considered more oftent than ever before. If this makese the businesses of the two separate Xerox organizations successful, this is going to look like a really good move in a few years after the dust settles. 
Register for InformationWeek Newsletters
White Papers
Current Issue
Top IT Trends to Watch in Financial Services
IT pros at banks, investment houses, insurance companies, and other financial services organizations are focused on a range of issues, from peer-to-peer lending to cybersecurity to performance, agility, and compliance. It all matters.
Video
Slideshows
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
Join us for a roundup of the top stories on InformationWeek.com for the week of August 21, 2016. We'll be talking with the InformationWeek.com editors and correspondents who brought you the top stories of the week to get the "story behind the story."
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.