Xerox Says Company Split Will Be Complete By Mid-2016

Printer and services giant Xerox is on track with plans to split in two by the end of the year, announcing Monday that it will hire top executives for each firm by the middle of 2016.

"The search is well underway, and we have high quality candidates for each key executive role," CEO Ursula Burns said.

In January, Burns announced the separation into two publicly traded companies based on its current offerings: a $7 billion organization focused on business process services; the other its legacy, $11 billion document technology business that includes printers, scanners and copiers.

[Related: Xerox Channel Chief On How Company Split Will Drive Channel Growth And Software Opportunities]

The services business, Xerox Global Services, is ranked No. 7 on CRN’s Solution Provider 500 list.

During the company’s first-quarter earnings call Monday morning, Burns announced that Xerox management has decided that the best transaction structure for the company to separate will be a spinoff of its BPO business, which the company expects will cost between $200 million and $250 million.

Also Monday, Xerox, based in Norwalk, Conn., announced the rest of a three-year, $300 million restructuring it expects will save $2.4 billion over the next three years form both ongoing and new initiatives.

When the split and restructuring were announced in January, some of its channel partners said they believed those moves would help them due to a stronger focus on the document technology side.

"With a split like this, Xerox is going to be able to use the profits from the sale of its devices and spend it on [research and development] for the devices themselves,’ Steve Jenkins, president of Xerox partner Precision Document Solutions, of Carrollton, Texas, told CRN at the time. ’Any time you have more R&D dollars coming in, the product is going to get better."

During the company's most recent quarter, Xerox spent $126 million of that $300 million restructuring initiative, with all but $2 million of that coming in the form of severance costs related to the layoffs of approximately 4,800 employees worldwide during the first quarter.

For the quarter, Xerox reported a 4-percent drop in revenue, to $4.3 billion, over the first quarter of 2015, slightly beating industry analysts’ expectations of $4.24 billion. However, its net income, weighed down by costs from the company's restructuring and planned separation, plunged 84 percent to $34 million.

For the rest of the year, Xerox is maintaining its revenue guidance, forecasting growth of between 2 and 4 percent over last year. For 2015, the company took in about $4.65 billion in revenue.

The company's stock fell more than 11 percent by midday on the New York Stock Exchange following the earnings release. For the day, the stock fell more than 13 percent, closing at $9.68.

The drop in revenue was driven by a 10 percent plunge on the products side, but softened by a gain in services revenue of about 2 percent, thanks to high renewal rates for services contracts.

On the company's conference call, Burns said that although margins and revenue "were a bit lighter than we would have expected," Xerox will rely on its restructuring initiative to help meet its guidance for the full year, with a particular focus on the products side.

"If you think about what we have done in the second half of last year, we did none of our restructuring in the document technology business; we did all of our restructuring in the services segment," she said.