Xerox Corporation (NYSE:XRX)
Special Presentation Conference Call
September 3, 2013 9:45 am ET
Ursula Burns – Chairman, Chief Executive Officer
Adam Herman (ph) – Broadman (ph) Partners
Barry Stewart – Omega Advisors
Good morning ladies and gentlemen and thank you for joining us here at the Citigroup Global Technology Conference. I’m Jim Suva, the IT, Hardware and Technology Supply Chain Analyst. At this fireside chat, we’re very pleased to have Xerox Corporation here. On stage with me is the Chief Executive Officer and Chairman, Ursula Burns.
Before her and I start off with a few prepared comments and some questions about business trends and strategy and outlook, we have Jennifer on the stage with me who is going to read some Safe Harbor statements. Jennifer?
Thanks, Jim. During this meeting, Xerox executives may make comments that contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 that by their nature address matters that are in the future and are uncertain. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Information concerning these factors is included in the Company’s most recent annual report on Form 10-K and its subsequent quarterly reports on Form 10-Q filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law.
Great, thank you very much, Jennifer; and Ursula, I want to thank you for personally coming down here and spending the day with us here in New York and investors. We have a packed room, which is great.
Maybe if we can start off by talking big picture, Ursula, about how you kind of see the current macro environment, on IT spending for your company and your products, and maybe compare it, say, to the visibility that you had maybe earlier in the year or a year previously.
What we’re seeing is similar to what we said in the second quarter. We’re seeing a stable environment overall, big picture, but weak – continued weakness. The strongest player, it turns out in this most recent times, has been the United States, which is not that buoyant in and of itself. We’ve seen a slowdown or—definitely a slowdown in a developing economy, and those sections will continue to be pressured. So what do I mean by a slowdown? I mean, they’re still growing on average but they are growing at at significantly slower rate, and there are some places around the world in these developing economies that are just really under significant pressure. Egypt—you know, the whole Middle East is under significant pressure, Africa is under pressure, and Russia has slowed down as well.
As far as IT spending, not a big change, interestingly enough. Still, it fits the global economy – cautious spending, longer times for contracts to be codified, signed and stood up, but still there, so the business is still there for the taking. The competitive environment in light of that is similar as well, so I think that what we see is a pretty stable environment, even though it’s not very buoyant.
Great. And then any breakdown about government versus commercial?
Yes. Fortunately, we have a good mix of both, obviously, and we are very strong in state and local government. We’re not really that exposed to federal spending. We have a very small federal portfolio, particularly in services. Most of our work is with states. States remain—what we saw in 2012 was an improvement in states. 2011 was a lot of discussion and debate about sequestration, all these other state fiscal environments, there were some caution. That improved a little bit in the tail end of 2011, and in 2012 we did see a stable environment.
What we do for states is one that is fairly immune – fairly immune – to big downturns. We provide infrastructure for Medicaid, for example, for health benefits. We provide infrastructure for unemployment. We provide infrastructure for child health, so these things are—we provide transportation solutions. So either they are required – it is what the state does, so you can’t kind of stop doing it – or it generates revenue for them. So we have been fairly well protected from massive swings in states.
And when we think about the spending environment, like you said, where it’s stable but weak, what are things that you as Chief Executive Officer of Xerox doing to help out on margins? Is there a restructuring? Is there efficiencies? Is there mix shifts? How are you running your business in this environment?
Restructuring, efficiencies, mix shift – let me get into it – and some more. So restructuring is an area that we are continuing a journey on, and we will continue for a while. By the way, we don’t adjust that. Our restructuring, it’s part of our operating results. We consider it part of our operating results on both the services and technology side. Most of the restructuring is in the services side. It’s on labor perfecting, so we get work done. We have a large offshore presence, a low cost labor presence, but that has to increase and move up the value chain. So most of our delivery infrastructure is outside the United States, which is not odd – it’s the first step of restructuring. Now we have to get higher level skills, research. We’re improving our engineering, we’re improving management functions, improving moving them around the world and getting some of the expertise that’s available around the world, but also the cost structure that’s available. So you will continue to see us doing that in both technology and in services, most of it in services.
Platforming is something that’s really an important thing for us, so when we grew and bought our ACS business, when we bought it and grew it, one of the things that we saw was that we have some good platforms but not fully matured and not being used across the base. Our Medicaid platform is the biggest one, so we’re through an investment there and now we’re using that as a foundation to grow and to focus our growth. If we can do that, then it’s repeatable, costs are significantly lower, particularly in the start-up phase. So focusing on businesses that use platforms that we’ve perfected.
A third is this whole idea about moving up the value chain with customers. A good example here is customer care – you answer the call, that’s a penny on the dollar. If you literally focus on adding more value – analytics, helping them reduce their cost structure or grow their revenue – it’s an area that you can actually charge more for basically the same amount of work. So using higher value services, providing higher value services is another area that we’re focused on.
In the technology business, it’s literally just heavy blocking and tackling. This is cost base and focusing our cost base on areas that are growing and removing cost from areas that are not. And in technology, it’s pretty straightforward. What’s growing? What’s growing is color printing, what’s growing is high-end graphic communication solutions, what’s growing is management services. Those areas, we move investments towards and we literally try to eliminate investments in other areas – black and white printing, some of our supply chain costs that are pretty legacy-based, et cetera. So a lot of moving parts in the business, the size of my business, and therefore a lot of opportunity to reduce cost and manage it.
You mentioned the word healthcare, and I think most investors in this room, which for those on the webcast should know is absolutely a packed room, which is great to see the interest in Xerox. On healthcare, I think most people in the room know that I’m very positive on Obamacare, of what it’s going to do to people in America who can’t afford healthcare for various reasons and allow them an opportunity. In my view, importantly, there are going to be more claims that are going to be going through the system, and that has potentially a positive impact for Xerox in my view more in 2014.
Do you share that similar view, and can you maybe help me understand, is that something positive that you’re focused on as CEO of your company, or am I just off my rocker on that view of Obamacare?
The Affordable Care Act, commonly known as Obamacare, will absolutely be a positive for our company. By the way, I think it will be a positive for just about anyone engaged effectively in healthcare across the board, be it payor, provider, anyone who supports those areas. The good news for Xerox is we support all of them. We support states, we support payors, we support providers, so it’s a good—and it sure is—you know, the entire sector.
Why is it good? Part of it has nothing at all to do with Obamacare, or the Affordable Care Act. Part of it has to do with the fact that as healthcare costs continue to grow in this country, people like myself, companies, we’re trying to find a way to actually manage their costs better, and they were being significantly more specific and inquisitive and directive about how and what their employers, their employees did. So they needed a lot more information. We wanted a lot more information about whether people are using name brand drugs versus generic drugs. All of that feeds into somebody who runs the back office. We wanted more information about what’s effective types of care for certain chronic diseases, et cetera. So independent of the Affordable Care Act, there was this unbelievable tidal wave that said, you’ve got to lower your costs. You know, we have to lower our costs somewhere, so we’re were just investigating more and more.
But then the Affordable Care Act came along, and it drove a couple of things. One is most states have to now determine how they’re going to provide healthcare cost effectively with outcomes connected to it, with some way to show their outcomes to their citizens. This is where MMIS business is leading – we provide, we serve more human beings in this country than any other company in the MMIS system. We are provider to a large number of states, and this is something that will continue to grow. So the states that we have; great. The good news is we have them. The great examples, they go in herds, kind of, so if you get a whole bunch of states, the next states will feel more comfortable doing business with you, so that’s one.
Another one is that payors, insurance companies or employers want to actually have information about data, and one of the things that we do about their clients is that we’re engaged in the health exchange marketplace, which is a really big deal. Health exchanges are still new. The good news is that we have expertise here. We are practicing this already in the government in states around the United States, and so we are going to actually be able to expand this.
Insurance companies, as I just jumped from them, big deal about outcomes-based, some new aggregation because in the past we insured groups of people. Now, the Affordable Care Act actually kind of eliminates the groups of people. They want you to insure individuals, provide healthcare to individuals. Information about individuals, it’s a big deal, and so a big deal for us. Healthcare is a growing market. It’s one that is ripe for automation, for cost reduction. It’s one that’s ripe for a repeatable solution across many states. It’s one—fortunately for us, we are in it and big in it - $2 billion business in our services lines of business already, and growing, and good margins.
Well, I’m glad I’m not crazy thinking about the affordable healthcare being a benefit for Xerox.
No, it’s a benefit for Xerox. It’s also a benefit for the nation. More people will come on board. More people—you know, we’re now required to provide insurance to everyone. Sounds like an interesting theory for a developed country, and so as more and more people come on rolls, we’ll have more and more participation.
And Ursula, if we set aside healthcare and think about some of the other things that you’re doing, can you help us think about growth opportunities and what you’re focused on, whether it’s commercial BPO, transportation. What other areas are exciting to you?
Transportation is exciting. It’s—
I just came back from India. I was there last week, and it just is an amazing place. When you realize that a large percentage of these people—well, a small percentage but a large number of people have cars, and just literally fitting them all on the road in an effective way is a massive challenge, right? It’s a massive challenge for us, a developed economy with a long history of paved roads, et cetera, and we need to improve. And these economies around the world, as prosperity improves or the cost of cars comes down, or the need for them increases, it’s a big deal. So transportation is a big deal, pushed by increasing number of people who can afford automobiles and an increasing requirement that there is some focus on the environment.
So transportation, where do we focus? We actually do basic road management structures, so how do you collect money from a person who is using the road at the right place and time? That’s done by us to a large extent. Tolling systems – how do you actually provide municipalities with the ability to actually manage the cars on the road better? So parking is a big deal in most places. A large percentage of the traffic congestion in any economy, any country is based on people driving around trying to find a place to park. If you can remove those costs from the road very effectively, then you can actually reduce congestion. You can also increase income if you actually charge for parking in a variable way, based on time of day, and we’re doing this in California using our transportation infrastructure data analytics, working with locality—in the state and then the locality to actually do what we call smart parking solutions.
So just think about it across the board. Everything that you possibly have to do requires that we have a good infrastructure to handle the number of automobiles that we have on the road, and states use it for revenue but also use it for providing a good place to do business, so we’re involved in that – transportation.
Customer care is a big area as well. Customer care is not just answering the phones and reading a script. That’s not what we do. We do some of that, but that’s the lowest value proposition. So as you think about telecom, we’re a big provider of telecom back office solutions, customer care solutions. What they want, what the telecom providers want is not only to have the inquiry solved but to get some information about how to design the next solution, right? So if you look at one of the biggest things that telecoms want, it’s lower calls, less calls. People would say that is something that we would not be in favor of, but we are very much in favor of it because it drives up the value chain with the telecom provider. So they ask us, what is the number one thing that is happening? What are people calling for? We can tell them without them asking us, this price plan that you have in place drives 30% of your calls. You should probably restructure this price plan, because you may think it’s actually sensible but all of the people who are calling don’t. What’s the next thing that I should introduce? Everyone has a choice whether they do the Samsung phone, Apple – whatever, all of these different types of devices now available, and the telecom providers have to choose which ones they bring in at which time. We can tell them how many people are calling, unknowingly asking – because they don’t know who has it – do you have A, B, or C? Are you carrying A, B or C? This is all information that telecom providers need and our customer care entrée allows us to provide them with those types of answers and solutions to design their business more effectively.
Into technology business, one of the things that’s a big deal is this idea of moving to a paperless office. A paperless office is not going to really ever happen. What we want to do is move to the useless paper eliminated office, right? There is a whole bunch of stuff that you can literally not ever print that you want to be able to see, so managing the information infrastructure in a company is what we do. We don’t try to drive pages to a printer. We actually try to eliminate them, so if you were a CEO, you should be able to actually get knitted together information about what you are asking – your financial results, how a certain promotion is going, how human beings are moving around the world. Managing that back office infrastructure for them is what we’re trying to do and eliminating, knitting it together so that they don’t have to print ever again this type of what we call useless paper.
And Ursula, those are some of the areas you’re focused on. Are there some areas that you’re kind of de-emphasizing or shying away from, whether it be student loans, or what about areas that you’ve just found it’s just not worth spending your time at?
Well one, the student loans, but by the way, we would have—student loan was a mandated change. It was a good business for us, and legislation changed and required that it move to certain—not a problem, so we’d got out of that. Anything like happens like that, we have to actually move quickly on, and student loans is one of those areas.
But I’ll give you an example of something that we just completed and we’re in the process of wrapping up, is the sale of our paper business. People don’t know that we are a big—we were a big cut cheap paper provider. Branded paper – we had an infrastructure that sold it, supply chain that managed it. It’s a good business for somebody; it wasn’t a great business for us. It was profitable, but just barely – very, very low margin business, so we actually packaged this business together in the U.S. and in Europe and we sold it, and we sold it in such a way that didn’t hurt us financially. It’s actually helped us financial as we go forward – lower growth rate eliminated, lower margin structure eliminated. I believe the focus on growing areas is more precise.
That’s an area—we go through our portfolio now very regularly to find these places of low growth, low differentiation, low margin, or just too small a scale for us to actually be number one, number two or number three in the marketplace. So we will continue to do that as we go through the business.
Ursula, I think you know I have a handful of additional questions, but the room is just packed with people and I already see some people kind of giving me the head and putting their finger up. So maybe if we can start to circulate the microphone and if we run out of questions, I can go back to mine.
But if investors have questions, if you can please raise your hands – there’s one here in the front – and make sure the microphone gets to you as this is being webcast. And if you can please keep your question to one part or maybe one sub-part, and not a 10 sub-part question like analysts, like we do sometimes.
Question and Answer Session
Adam Herman (ph) – Broadman (ph) Partners
Okay, thanks for taking my question. My name is Adam Herman (ph). I work for Broadman (ph) Partners. You mentioned earlier the sort of outsourcing businesses from the U.S. to offshore, and I’m just curious to hear how big is the cost gap and how much does that need to be reduced for you to consider to keep the business in the U.S.?
I’m going to answer the question a little bit differently and then move back to consider to keep the business in the U.S. If you look at our – Xerox’s – labor mix, particularly in services – technology is different – 90% of our labor costs are in what we would consider high-cost geographies. By the way, that’s not the U.S. only. There are a lot of high-cost geographies out there, right? So on average, it’s 90%. Actually, a significantly lower number of people, right, so significantly higher of people are outside the United States than 10%, but this just goes to show you the cost gap that you have in high-cost areas versus low-cost areas. So 90% of the dollars in high-cost areas, let’s say 60% of the—60%, 70% of the employees in high-cost areas.
So what we have to do here is mix more of the higher cost individuals around the world. We’ve done the first step, which is everyone who is a repeatable process, what I call the factory portion of our business, we’ve availed it to the rest of the world. But some of our larger, higher value functions, we are slower—we were slower in making those moves around the world, and we have to make them. And it’s not about only moving out of the United States; it’s actually moving into other areas, which will obviously give the United States and Europe some structural decline, but it will grow and use capabilities around the world.
It’s a fairly big gap, right? It doesn’t take us—it won’t take us moving half the population out just to get an additional 10 points, but we’re focused on getting our mix higher – 60%, 70% of the cost in high-cost areas. It will take a while. It will take a while, because this is knowledge work that we’re moving, right? There are people who are doing the work today in would be the areas, and we have to actually not only move the bodies, we have to move the entire process. It’s not like standing up a call center.
Adam Herman (ph) – Broadman (ph) Partners
It’s interesting to see several companies, the trend is reversing due to language issues, et cetera.
Yes, this is a different type of work, though – let me be a little clearer on this. The back office work that we have – so the people who actually do answer the phones – we have those people spread all over the world, and we have them language-specific, right? So if you—and we have them requirement-specific. If you’re a state company, a state employee or a state provider, they generally want to work in their state. That’s not off somewhere else. They say, you’ve got the back office for me – thank you very much, and by the way, I want you to have it in Staten Island, if you were in New York State, or I want you to have it in Dallas, if you were in Texas – those kinds of things. Those kinds of limitations, we will quote clients to make sure that they are aware of the differences in costs, but whatever they want, we do.
This is not that kind of work. What we’re talking about is we have a finance infrastructure, we have a legal infrastructure, and it’s parts of that work that’s not really customer-facing at all. It’s governance-type work that can be moved as well, and should be because it avails ourselves to more higher skilled, more flexibility from a time zone perspective, the ability—you know, all of these things that you hate about working around the clock, et cetera. It’s possible to do it, and it’s not about answering phone calls at all.
Adam Herman (ph) – Broadman (ph) Partners
Okay, thank you.
Are there additional investor questions? There’s a question here in the middle of the room.
Barry Stewart – Omega Advisors
Thank you – Barry Stewart with Omega Advisors. Ursula, you spoke about how you are trying in some cases to get your customers to print less and use your, I guess, technology management services so they can display information in other than printed form and do their business more efficiently and effectively. Can you tell me how do you trade off and what sort of a magnitude of your profit exposure to such managed services relative to the traditional hardware and consumables that are in the technology division?
Right. It’s a good question, by the way. So as we move to an MPS-type – managed print services-type – infrastructure and value proposition, either clients asking us or we’re selling it to them and educating them, it does put pressure on our technology sales because those sales are actually wrapped up in the services contract, so you don’t see the equipment sale revenue hit at one time. It turns out equipment sale revenue is a small part of our business in total today. It’s, I don’t know, 15% of our total revenue, so it’s already—by the way, it’s easy to get it, or—how do I say this? It’s good to get it if you have a low revenue quarter, because when you sell something big, you get it immediately. But from a longevity standpoint, it is significantly better for Xerox to actually sell managed print services as a solution.
Why? Because when we do that, we are essentially device-agnostic. So we have 20% revenue share, equipment revenue share, in the global market today, so that means that 80% of the devices out there, quote-unquote, are somebody else’s. They are not ours, and what MPS allows us to do is actually manage those devices as well as our own and provide a solution, an efficiency-based solution that’s broader than just us trading our own machines in and out, in and out. The technology market is largely a replacement market, and it’s largely an incumbency-based market, so as you drive MPS higher and higher, you get to participate in more of this market out there.
One of the reasons why most—we created MPS, I don’t know, eight or nine years ago, maybe even before that. One of the reasons why it’s picked up so much is because, one, clients want it, they want to be more efficient; but also, because this market is essentially saturated and a replacement market from a device perspective, the only way you’re going to be able to participate more is to actually add more value. So we’ll have pressure on our equipment sale revenue, but one that we’re willing to trade off very easily because MPS growth is growing a lot faster.
Great. Are there additional questions from the investors in the crowd? Maybe as we wait for the next one, Ursula, you’re Chief Executive Officer and you also have a Chief Financial Officer—
You keep reminding me of this.
Yeah, and in the room you have all these investors. All of them have different immediate wants. Investors want dividends and stock buyback right away; you want to grow the business; your Chief Financial Officer, she isn’t earning much money in a Citibank savings account because interest rates are so low. Can you help remind us about your view for capital deployment and what your view is there?
It’s a good question. We spent a lot of time on this, and fortunately the thing I think is we’re on a pretty good cadence, and cadence because of consistency but also operations. First is the two areas that you spoke about that investors are highly interested in. One is our dividend and the second is our share position.
So our dividend, we increased the dividend by 35% last year, effective this year, and we want to continue to do that, not at that pace or that scale, probably, on a go-forward basis, but we’re going to continue to review our dividend and kind of get back to a reasonable cadence of dividend increases. We spend, I don’t know, $300 million on our dividends. It’s a very small part of our capital, and this is all inside of CAPEX. Our CAPEX is a normal—let’s say $400 million, $300 million to $400 million, not going to change very significantly on a go-forward basis.
Share repurchase, we said we would repurchase at least $400 million worth of shares – at least, more if we get more cash, more if we fall short in some of the other areas I’m going to speak about right now, but at least $400 million worth of shares
The third area is we want to use some of the capital that we have to increase our position from a competitive standpoint, so either by buying companies primarily, companies that are in verticals that we need to actually double down in, that have capabilities that we need to fill in, or that have the prospects for geographic expansion, which is a place that we want to spend more time, particularly in services, so we want to continue to acquire companies to complete the portfolio. Somewhere between $300 million and $500 million will be spent there.
And then we had a debt repayment that we had to make this year of $400 million. It’s done and behind us, and as we go out, we have some more debt payments that we have to make next year. We’ll look at whether we pay or refinance, but essentially those four buckets are what we’ll look at our capital, and investors shouldn’t think about us changing that very significantly in the next 12 months. We’ll provide a more detailed update at the investor conference in November, though.
And that’s in November?
That’s in November.
Investors, do you have some additional questions? It’s a packed room. It’s hard to see why people would be so shy. Otherwise, I can keep asking my questions and maybe I’d put—here we go.
Hi. What do you think is the most misunderstood part of your business?
I think that there are probably two places. The first is that we still have a large number of investors who are not aware of the breadth of services that we provide. Fifty-five percent of our revenue now comes from BPO, IPO document outsourcing services. We do everything from customer care to finance and accounting to HR outsourcing to Medicaid infrastructure to transportation, and data analytics that support all of those businesses. And it’s just continuing to hammer on what we do for a living, really what we do for a living today. We have $2 billion of revenue that comes from healthcare, and we have to talk about this a lot so that people can understand it. So one is understanding the suite of what we do.
The second misunderstood piece, I think, is the trajectory of the technology business and the impact of what is a likely set of outcomes in that business. One of the big concerns is that there is going to be this draconian change in the flow of the technology business. I think we’ve used the words that our eyes are wide open to the trends in this marketplace. We think we’ve comprehended them fairly well, and the nervousness around a massive change in the financial structure—the customer structure and the financial structure of that portion of our business is low versus the predictions that we have for them. We predict that this business will decline at about mid-single digits and that it can continue to have strong margins and throw off good cash. We’re not expecting it to grow wildly, et cetera, and those two things I get a lot of questions about whether or not we’ve comprehended enough of a decline in the technology business and what really do you do from a services perspective – oh, I didn’t know you did that, I didn’t know that managing Easy Pass for the three states around here is something that you did. I didn’t know that you did parking management, I had no idea that you did healthcare back office, et cetera.
So we’ve spent a lot of time on it. I’ve spent a lot of time in forums like this. I visit investors, we have communications in the form of advertising or other media that shows people what we do. And once we get that kind of understanding and an understanding of the flow to that business, then proving the point is what we have to do. So we’re doing some of the proving the point, and we’re doing some of the educating and we have to continue to do that as we go forward.
Okay, there’s a question here on this side of the room up front.
You touched on margin a couple of times. Where do you see Xerox going in terms of margin, and when you think about your company and the whole industry, who do you really compare with from the perspective of different businesses and that?
Yes, so I’ll break it into two portions, primarily because the integrated margin creates the issue of you have a technology company that you’re comparing against and a services company that you’re comparing against. Operating margin in the services business is probably the most—is the most asked, curious proof point question, whatever you want to call it. We want to operate – and this is in the near-term – in the 10% to 12% margin business, performance level, primarily because that level will allow us to grow, continue to grow, continue to expand, continue to invest, because you know how this business works. If you sign a whole lot of business in the beginning, depending on the mix of business, it takes a while before that contract – it could be a month, by the way, but it also could be six months – before that contract turns to anything other than spending money on it before you get any revenue. So managing in that range will allow us to actually continue to fuel growth and assure that we have a mature business over time that actually operates at the higher end of that range or maybe even higher. So 10% to 12% in the services business is what we’re looking for.
The second part was about who are the main competitors?
Yes, who are the competitors and how do they operate. Technology is a little different. Before I move on, technology has generally a higher operating margin. It’s fairly predictable, so think—it’s fairly predictable. Prices are fairly predictable, cost base is fairly predictable, et cetera. So technology business, we focus more on the gross margin there, but not a problem.
Competitors? In technology, they are the normal guys that you see. They are Japanese companies incorporated, so Canon, Ricoh, KM are the three big ones. Outlier in the competition docket is Samsung, which is a competitor and a partner for just about everybody who I just talked to, so we buy things from Samsung, we go to market with them, but we also compete with them in certain parts of the business. And at the high end, it’s HP. At the very high end, it’s HP and Xerox who are the two major providers in the graphic communications space. We duke it out in the marketplace fairly effectively there.
In services, it’s a completely different set of companies. In the IT space, it’s the company that you would think of. It’s IBM, it’s Japanese—sorry, the Indian providers there. We are a very specific player in ITO, so we don’t compete often with IBM. We don’t do application development, we don’t do these large-scale global things. We are a niche player with a very specific set of capabilities around a specific set of clients. I talked about telecom, entertainment and retail are places that we actually have a good presence.
And then in transportation, there are companies like Maximus – I think Maximus is one of them. Hm? Maximus is in health, I’m sorry. There are small transportation providers that we compete against by state. Sometimes we compete with the state, their internal process as well; and in healthcare, it’s Maximus, McKesson. We do partner with McKesson. CGI is another one that we compete with across the board.
So different competitors, which makes it very interesting. So these different competitors, you would think that you would like to have a few competitors. I think it’s actually very useful to have a large number of small competitors spread all over the place, and as scale becomes more important and as platforming becomes more important, which it is. As risk mitigation becomes more important, having smaller, non-diversified players competing with us is an advantage, not a disadvantage.
I think we have time for one more question. There’s one right here – thank you.
This is a follow-up to the healthcare conversation we had earlier. Is there any way to scope how you think about the size of the incremental opportunity over the next one to five years, I guess?
Yes, so today we have in our services business alone – this is not covering selling equipment to healthcare. That’s not a services line; it’s about a $2 billion business. It’s growing faster than the rest of our services business quite significantly, and its margins are better than the rest of our services business by quite a bit, if you do it well. So I don’t know how it’s going to grow, but I can tell you how I want it to grow and how we’re going to focus our investment, not just in acquisitions for scale, acquisitions for capability, but also our investments in how we sell, how we advertise and position our company. We want to continue to grow that portion of the business at a rate that’s significantly faster than our services business, so think about twice as fast as our services business growth. So if our services business is growing at 5%, we should be able to grow our healthcare at 10%, et cetera.
Now, it’s going to be hard, primarily because healthcare—when I say healthcare, it means everything to everyone, so we have to be pretty specific and not get too far away from our expertise areas. But it should be able to grow significantly faster and perform well because it is a knowledge-based type of solution. It does lend itself well to applying innovation to how you speak to the customer. The customers are willing to try new things to just get in front of this big bubble that’s coming at them, so it’s a good business for us to be in. It actually pulls on all of our strengths.
The one place that we have to actually look a little bit differently is in international positioning of healthcare. Healthcare today is largely a U.S.-based business – U.S., not even Canada, not even North America, U.S. So some of the challenges that we’re seeing on healthcare costs and health (indiscernible) take on a different language when you go outside, but it’s a similar set of problems outside the United States. So one of the challenges that we have and where we’re working on is trying to port not the solutions that we have here, but the requirement that there be a set of solutions developed and provided for developing economies and economies outside the United States, trying to actually use the expertise and the foundation that we have to grow outside the United States. That should be even better, allow us to grow even faster than we’re growing today.
Well ladies and gentlemen, this concludes our time. I’d like to personally thank such a packed crowd for coming, and also Ursula Burns, the Chief Executive Officer and Chairman at Xerox Corporation. This concludes the fireside chat with Xerox Corporation. Thank you.
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