Xerox 2008 Annual Report Download - page 36

Management’s Discussion
Segment Revenue and Operating Profit
Production
Revenue
2008 Production revenue of $5,237 million decreased 1%,
including a 1-percentage point benefit from currency, reflecting:
• 2% increase in post sale revenue as growth from color,
continuous feed and light production products offset declines in
revenue from black-and-white high-volume printing systems and
light lens devices.
• 10% decrease in equipment sales revenue, primarily reflecting
pricing declines in both black-and-white and color production
systems, driven in part by weakness in the U.S.
• 1% increase in installs of production color products driven in
part by Xerox 700 and iGen4TM activity as well as color
continuous feed.
• 6% decline in installs of production black-and-white systems
driven primarily by declines in installs of light production
systems.
2007 Production revenue of $5,315 million increased 5%,
including a 4-percentage point benefit from currency, reflecting:
• 8% increase in post sale and other revenue, including a
4-percentage point benefit from currency, as growth from digital
products more than offset declines in revenue from older light
lens technology.
• 1% decrease in equipment sales revenue, including a
3-percentage point benefit from currency, reflecting growth in
production color systems offset by declines in black-and-white
production printing systems and light production and an
increased proportion of equipment installed under operating
lease contracts where revenue is recognized over-time in post
sale.
• 6% growth in installs of production color products driven by
DocuColor®242/252/260 family, DocuColor 5000 and iGen3®
activity.
• 8% decline in installs of production black-and-white systems
reflecting declines in installs of both high-volume and light
production systems.
Operating Profit
2008 Operating profit of $394 million decreased $168 million from
2007. The decrease is primarily the result of lower revenue and
lower gross margins due to pricing and product mix as well as
increased SAG expenses.
2007 Operating profit of $562 million increased $58 million from
2006. The increase is primarily the result of higher gross profit and
lower R,D&E, partially offset by an increase in bad debt expense.
Office
Revenue
2008 Office revenue of $9,828 million increased 4%, including a
1-percentage point benefit from currency, as well as the benefits
from our expansion in the SMB market through GIS and Veenman.
Revenue for 2008 reflects:
• 4% increase in post sale revenue, reflecting the full year
inclusion of GIS as well as growth from color multifunction
devices and color printers partially offset by declines in
black-and-white digital devices. Office post sale revenue was
negatively impacted in the fourth quarter of 2008 by declines in
channel supply purchases, including lower purchases within
developing markets.
• 2% increase in equipment sales revenue, reflecting the full year
inclusion of GIS as well as growth from color digital products
which more than offset declines from black-and-white devices
primarily due to price declines and product mix.
• 24% color multifunction device install growth led by strong
demand for Xerox WorkCentre®and Phaser®products.
• 8% increase in installs of black-and-white copiers and
multifunction devices, including 8% growth in Segment 1&2
products (11-30 ppm) and 8% growth in Segment 3-5 products
(31-90 ppm). Segment 3-5 installs include the Xerox 4595, a 95
ppm device with an embedded controller.
• 12% increase in color printer installs.
2007 Office revenue of $9,473 million increased 9%, including a
3-percentage point benefit from currency, reflecting:
• 9% increase in post sale revenue, reflecting the inclusion of GIS
since May 2007 as well as growth from color multifunction
devices and color printers.
• 9% increase in equipment sales revenue, reflecting the inclusion
of GIS since May 2007 as well as color multifunction products
install growth.
• 65% color multifunction device install growth led by strong
demand for Xerox WorkCentre products.
• 5% increase in installs of black-and-white copiers and
multifunction devices, including 4% growth in Segment 1&2
products (11-30 ppm) and 7% growth in Segment 3-5 products
(31-90 ppm) that includes the 95 ppm device with an embedded
controller.
• 10% decline in color printer installs due to lower OEM sales.
34 Xerox 2008 Annual Report
• Sales gross margin decreased 2.2-percentage points primarily
• Service, outsourcing and rentals margin decreased
• Financing income margin of approximately 62% remained
• Sales gross margin increased 0.2-percentage points primarily as
• Service, outsourcing and rentals margin decreased
• Financing income margin declined 2.1-percentage points