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optifan

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ACN, FTR, G, IBM, INFY, MMM, T, XRX
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  • Accenture Meets All Of My Criteria [View article]
    A long term ACN client's view (actual quote): "Six months later nobody asks you what it cost; they ask whether it works." That's how ACN has penetrated most of the Global 200 and remains in harness, even at their high rates.
    Dec 23, 2014. 04:39 PM | Likes Like |Link to Comment
  • Xerox: Strong Cash Flow, Large Buybacks, Fair Value [View article]
    'Diesel' is spot on with his three opening assertions: (a) XRX plans to return half of its (dwindling) FCF to investors; (b) growth has slowed (or, more to the point, has halted/declining) "... but making 'transition'..." (to what, we ask?); and (c) its current valuation does not account for growth (because there's none in sight).

    Check out the following stats, listed in this order: gross margin%/operating margin%/free cash flow ('FCF') per revenue dollar:

    - XRX in 1994: 60.8%/27.1%/16 cents FCF per revenue dollar
    - XRX in 2009 (pre-ACS): 84%/15%/13.3 cents FCF per revenue dollar
    - ACS in 2009 (pre-XRX): 17.8%/10.5%/6 cents FCF per revenue dollar
    - XRX in 2012 (ACS 'integrated'): 32.3%/6%/9.3 cents FCF per revenue dollar, all on a downward trend.

    Might there be some Ursula Burns-style dilution here, as in a ‘Hail Mary’ pass (grossly overpaying for ACS) that is failing even as she rakes in her eight-digit salary?

    Now check out these comps, of which companies XRX claims as its 'peers':

    - ACN in 2012: 31.8%/14.2%/13.1 cents FCF per revenue dollar
    - CTSH in 2012: 38%/18.8%/11.4 cents FCF per revenue dollar
    - IBM in 2012: 48%/19.6%/14.8 cents per revenue dollar

    We get the point. XRX is in fact another EK in the making (remember their Sterling Drug 'synergy' fiasco, sort of like ACS and XRX?). Compare their stock price charts over time. Remarkable similarities.

    Playing XRX can be profitable for speculators and day traders (as were EK and GM as they marched toward their graves). It has been for us. Just don't make it a long-term holding in your retirement portfolio.

    XRX looks a lot like EK and GM in their end times: an 'icon' company with a stellar past headed by a clueless CEO with a giant ego, enabled and cheered on by an equally clueless and quiescent BOD.

    What a wonderful way to make a living. Thanks, Ursula!
    Nov 26, 2014. 12:41 PM | 3 Likes Like |Link to Comment
  • Accenture announces management shuffle [View news story]
    Sounds to me like it's a normal retirement of an older and successful executive, not a 'shake-up'.
    Jul 9, 2014. 07:30 AM | Likes Like |Link to Comment
  • Xerox Management Discusses Q4 2013 Results - Earnings Call Transcript [View article]
    Look closely into their 'engine room' (development and delivery capabilities and tortoise-like culture) and 'wheelhouse' (senior management and BoD) and you can appreciate why 'serious earnings growth' is quite distant, if not a total will o' the wisp.
    Jan 27, 2014. 06:58 PM | Likes Like |Link to Comment
  • ModernGraham Valuation Of Xerox Corporation [View article]
    Both fact and myth(s) are at play here. ModernGraham did a nice job of presenting a succinct quantitative analysis. That's the fact portion.

    As for the myths:
    1. The idea that services is salvation for a hardware company is a myth, unless they're proprietary services focused on maintaining their own devices or software, i.e., a 'captive' market. Here are the typical gross margin/operating margin stats for various components of the IT industry: software - 80%/40%; hardware - 60%/30%; proprietary services - 40%/20%; 'other' services - 20%/10%. This last is somewhat higher than where ACS stood just before XRX acquired them; it's now lower and trending downward. IBM got it right - lots of software and good hardware to deliver their high ROE.
    2. XRX's sale of their solid ink business to DDD was at a distressed price, a great buy for DDD. It represents another step in XRX's exit from that market (except for providing certain components). They do not have commanding patents or technologies. Once again, too little too late. From the horse's mouth per a recent CNBC piece: "Kevin Lewis, head of Xerox's 3-D initiatives, said, "I just think the [additive manufacturing] market will be small [for Xerox]." Also, a good deal of XRX's engineering and R&D was placed (by Burns as president) in the hands of HCL Technologies, a head-to-head competitor of ACS. How proactive do you expect they'll be in helping XRX maintain its technology cash cow, which funds competitor ACS?
    3. No board member, including Burns, has ever run a company, or is currently running one, whose ROIC has in recent years exceeded its weighted average cost of capital (OTC:WACC). Such companies are, by definition, short-timers. Just a matter of time, or perhaps a miracle?
    4. As djean states XRX's services business (mostly call centers) is low margin and people intensive. Overstaffing in both their technology and services businesses is the reason XRX's operating margin is suffering and continues to decline annually. Just too many legacy heads and a management lacking backbone to deal with them. ACS moving to India to get cheaper labor only exacerbates XRX's conflicted relationship with HCL. And those who expect that the health care wave will carry them in the future should check out the mess they've made in Montana 'rebuilding' that state's Medicaid computer systems. It's ObamaCare all over, probably worse. And it's not the only one.

    For whatever it's worth, I have done well with Xerox (and other basket cases) over the years. I am currently long, but with a hair trigger finger on it. It's definitely not a good long-term investment for the retirement fund. It must be watched closely, with hand always on the escape hatch lever.
    Jan 8, 2014. 01:10 PM | 1 Like Like |Link to Comment
  • AT&T's Sale Of Connecticut Wireline Assets Makes Sense [View article]
    Dosto, ya gotta give Stephenson some credit for fleecing FTR of $2b cash for an essentially wasted (read: wireline) asset. Good trick given that they and VZ and others are positioning with FCC to get out of the wireline business starting a year from now. Far better $2b cash now than writing it off in a couple of years or, perhaps worse, having to keep it alive indefinitely for political reasons, especially given its CWA and other pension liabilities.

    Short FTR, stay long T.
    Dec 19, 2013. 03:50 PM | Likes Like |Link to Comment
  • Frontier Communications Doubles Down On Landlines [View article]
    Relevant facts not mentioned:
    1. CEO Wilderotter became top dog in 2006, with stock price at $14. She purchased certain land line assets from Verizon in late 2009, with stock price falling to $8. Stock now at $4 and change. Is there perhaps a trend here? Will we soon see a $2 handle on FTR? Is this just one more Wilderotter 'Hail Mary' pass? Read on.
    2. FTR is badly in need of new cash flow to keep its payout engine going, the only strategy management can come up with. ATT-CT may provide that short-term, but at the expense of being a rapidly declining market as technology changes the game and customers jump ship to cellular and IP. And does this management stand a chance against the CWA and its pension fund shortfall?
    3. FTR is one of the most heavily-shorted stocks today, with 20% of stock outstanding currently in short interest. Eh?
    4. FTR's Altman Z-Score is very low and in 'red zone' territory, indicating a probability of bankruptcy in the next two years of 'somewhat less than 49%'. Huh?
    5. The land line providers (ATT, Verizon, etc.) have petitioned the FCC to begin SHUTTING DOWN or otherwise abandoning (or better yet selling for a premium price to someone less smart) their land line operations as soon as a year from now, as cellular and IP technologies take over. At $2b, ATT took FTR to the cleaners, just as Verizon did in 2009.
    6. FTR, desperate to generate new cash flow, will cut capex to the bone and raise prices, spurring further deterioration of land line service levels and accelerating customer cancellations.

    Anybody who denies these facts ("but, you know, we need POTS land lines for fax and 911 service") has their head in the sand and/or does not understand technological disruption and how fast it is happening in telecom.

    An interesting stock for day traders, but not for 'buy and hold' types.
    Dec 19, 2013. 07:18 AM | 3 Likes Like |Link to Comment
  • What's Driving Xerox In 2014? [View article]
    XRX is a classic case of a 'Greater Fool' investment, where the canny investor hopes that there are such out there keeping the stock price inflated until he can cash out or go short before it falls once again. This company is a one-time paragon slowly twisting in the wind as circumstances (and technology) overtake it. Notwithstanding that fact, it is a wonderful 'in and out' investment, i.e., going long and then shorting it as it flips to the downside. Just look at its long-term stock price fluctuations over the last 20-30 years. It's like moguls on a ski slope, momentary ups followed by ever lower downs, but always trending downwards. Not a place to put your money long-term. Ask the Xerox retirees. Sort of a Kodak in slow motion.

    XRX Services doesn't offer much hope, other than steady XRX's top line (essentially fixed for the last five years). They are principally in the commodity business of 'customer contact' (read: call centers), with operating margins of less than 10% that are declining annually. Look at how that vital stat has fallen since acquiring ACS. Given that trend it's not good news that XRX's services business is their 'growth engine'. And it's not at all good news that they need to outsource the higher margin work to the likes of Cognizant.

    Watch Dell and HPQ. They're quickly getting it together, with more than a little help from their 'friends': Dell recently teaming with Accenture to exploit the cloud through their jointly developed services and product sets; HPQ likewise teaming with Accenture in the same vein. XRX, on the other hand, with little software product to leverage and having to outsource its high margin work (by necessity because they lack the capabilities) to an aggressive India-based player, one-third its size but with triple its market cap and with their eye clearly on XRX's customer contact market.
    Dec 14, 2013. 11:33 AM | 1 Like Like |Link to Comment
  • Xerox Mishap Shows How Far It Has Come [View article]
    Analysts are finally starting to ping on XRX's use of factoring to boost their 'cash flow', i.e., to pull future period revenue into current period (but at a high price due to typically high discount rates, thus lowering operating margins). A good sign in that it may help increase investor insight as to the company's true condition and prospects.

    Query: what portion of the company's future revenue streams (for both equipment leases and long-term services contracts) have been thus cashed ('hollowed') out?
    Oct 26, 2013. 06:20 PM | Likes Like |Link to Comment
  • Xerox Management Discusses Q3 2013 Results - Earnings Call Transcript [View article]
    Kudos to Ben Reitzes and Mark Moskovitz for starting to ping on XRX's penchant for 'creating' substantial 'cash flow' via factoring. Factoring is a very expensive way to generate quick cash. It can cost between 8% and 20% right off the top. Their operating margin is under 10% and falling. Is factoring perhaps part of the reason?

    Factoring is normally done by (a) companies on the edge financially, and/or (b) companies in need if quickly covering a very short-term and temporary cash gap, and/or (c) companies window-dressing their financials to flim-flam investors.

    XRX was cited by the SEC for the latter back in 2002 and was punished heavily for it. UB was assistant to the CEO at the time. Did she know of these shenanigans? Many of the accounting and finance staff from that time still hold positions of influence there. They no doubt did. Have they reverted to kind?

    For further info, check out the SEC's 2002 complaint at SEC.gov. Google "xerox factoring cash sec". Read paragraphs 72 - 75 to see the details.

    I'm happy at least some of the analysts are starting to do their jobs of digging into smoke and mirrors this crowd peddles. Cheer them on in the name of transparency and service to the investor.
    Oct 26, 2013. 02:17 PM | 1 Like Like |Link to Comment
  • Xerox Mishap Shows How Far It Has Come [View article]
    What's truly amazing about XRX is - at least to this point - many of its investors' willingness to behave as ostriches, engaging in fantasies about its prospects. The food stamp debacle is failure on a most fundamental level, a clear sign of extreme incompetence. No common sense at all displayed there.

    The company is well on the path to replacing a high-margin (both gross and operating) and high cash flow legacy business with one (IT services) that generates those metrics at one-third their levels (check out the performance metrics of peer IT services companies vs. tech hardware providers). There has been no top line revenue growth at Xerox since acquiring ACS, while gross and operating margins (and free cash flows) decline steadily each year. Run a PV analysis on this trajectory and one finds that the company, at $10.50, is likely overvalued.
    Oct 16, 2013. 04:50 AM | 1 Like Like |Link to Comment
  • Xerox: A Safe Investment With Over 50% Upside [View article]
    So, IBM just sold its 'too low margin' (20% gross margin) customer contact BPO business to Synnex/Concentrix so it can focus on its 60% gross margin software and hardware businesses. ACS, the year before its acquisition by XRX, had a 17% gross margin. It may be slightly higher now that it includes XRX's proprietary services business, which has always carried a high margin.

    ACS's primary business is customer contact BPO. How threatened will its margins become now that IBM's BPO 'gorilla' is able to perform freed from IBM's extraordinary overhead charges and less-than-decisive corporate culture?
    Sep 11, 2013. 07:58 PM | Likes Like |Link to Comment
  • Xerox - Copy This, For A 30% Upside [View article]
    Banker/Krustyman,

    Re. 3-D printing, PARC has been 'working on' technology for flex electronic circuit 'printing' for some time. But their becoming a large factor in overall 3-D printing may be a stretch. There's no evidence that they're positioned well to compete with the likes of Stratasys, 3-D Systems, etc. And if they were so positioned would not Ursula Burns be boasting about it as she does other of their accomplishments?

    Other questions:
    - who owns the underlying IP, XRX? AAPL? Alien Technology? a Japanese company?
    - over one-half of PARC's work is done for third parties, not XRX; is this one instance of that?
    - XRX is known for fumbling new technologies, unable to execute, e.g., PC technologies; have they corrected that long-standing cultural quirk?

    I hope you're right about their 30% upside potential. I'm presently long XRX and will stay so committed until it tips back down. David Einhorn has taken his profits and sold out; Lynn Blodgett, XRX's head of services (the ultimate insider) sold $15 million worth of shares over the last three months; several other funds are starting to blend down their holdings. I watch them all closely to decide when to take my profits and run.

    In the mean time, why not check out the USPTO web site to see who owns the 3D circuit printing IP?

    Optifan
    Aug 30, 2013. 06:37 AM | Likes Like |Link to Comment
  • Xerox - Copy This, For A 30% Upside [View article]
    Banker, you might want to look more closely at XRX, ths time wearing your skeptic's glasses. No year-over-year growth, combined with quite negative tangible book value, not to mention annually declining gross margin, operating margin, and FCF per dollar revenue. Clearly a corporate 'Sad Sack' heading for the graveyard. It will take time but overpaying substantially for a low margin business as ACS (among the lower-margin of players in an inherently low-margin segment) does not bode well for a company that has foresaken its legacy business in pursuit of their 'document services' will o' the wisp.
    Aug 28, 2013. 08:04 PM | 2 Likes Like |Link to Comment
  • Xerox: A Safe Investment With Over 50% Upside [View article]
    Tap, like you I have too much XRX stock to be as comfortable as the writer. But I have no problem with Burns buying a software company. That's the strategy Palmisano set IBM on years ago. It seems to be working well for them. Software has the highest gross margin/operating margin ratio of any IT segment, 80%/40% (ORCL for instance is at 81%/39%). Non-proprietary IT services such as ACS, on the other hand, has the lowest GM/OM ratio of any IT segment, 20%/10%. Hardware companies with proprietary services arms run in the 60%/25% range (e.g., CSCO: 59%/22%).

    Note that just prior to its acquisition by XRX, ACS had (in 2009) gross margin of 18% and operating margin of 10.5%. Look at XRX back in 1994, when their GM/OM ratio was 61%/27%. Compare that to 2012, three full years after acquiring ACS, now running at 37%/7.4% and declining annually! How's that for a death spiral? IBM runs at 49%/19%, thanks to pursuing their strategy of 'software is the new hardware'. ACN runs at 32%/14%, but how many can duplicate them?

    Here are some facts and realities regarding XRX:

    1. Lynn Blodgett, CEO of their Services unit, sold 1.5 million shares in the first two weeks of this month. What does the writer have to say about that well-publicized tidbit?
    2. Pre-acquisition, ACS earned $0.06 of FCF for every $1 of top line revenue. XRX at that time earned $0.15 of FCF for every $1 of revenue. The combined XRX/ACS now earns roughly $0.10 for every $1 of revenue, thanks to a steady decline in their cash cow legacy technology business and (not really) offsetting growth in a low-margin business, IT services.
    3. XRX's legacy business is woefully overstaffed, by perhaps 20,000 or so. Look for a major restructuring writeoff or, if not, death by a thousand cuts from multiple incremental ones.
    4. Both Burns and Blodgett profited personally several years ago from financial shenanigans while in senior executive positions with their respective employers. The SEC came down on both companies with severe sanctions. Do you trust these same people with your dough or retirement funds? I sure don't.
    Aug 16, 2013. 09:12 PM | Likes Like |Link to Comment
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