Xerox 2009 Annual Report Download - page 22

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Our Business
Service
As of December 31, 2009, we had a worldwide service force of
approximately 12,500 employees and an extensive variable contract
service force. We continue to expand our use of cost-effective remote
service technology for basic product offerings while utilizing our direct
service force and a variable contract service force to address customers’
more advanced technology requirements. The increasing use of a
variable contract service force is consistent with our strategy to reduce
fixed service costs while maintaining high-quality levels of service.
We believe that our service force represents a significant competitive
advantage because it is continually trained on our products and its
diagnostic equipment is state-of-the-art. We offer service 24 hours
a day, 7 days a week, in major metropolitan areas around the world,
providing a consistent and superior level of service worldwide.
Customer Financing
We finance a large portion of customer purchases of Xerox equipment
through our bundled lease arrangements. We believe that financing
facilitates customer acquisition of Xerox technology and enhances
our value proposition while providing Xerox a profitable revenue stream
and an attractive gross margin that provides us a reasonable return
on our investment in this business.
As a result of our customer financing program, we benefit by gaining
in-depth knowledge of the products being leased and a deep
understanding of the customer base and their use of our technology.
This knowledge allows us to effectively manage the credit and
residual value risk normally associated with financing. Our financing
risk is further mitigated because a majority of our lease contracts
are non-cancelable and include cancellation penalties approximately
equal to the full value of the lease receivables.
Because our lease contracts permit customers to pay for equipment
over time rather than at the date of installation, we maintain a
certain level of debt to support our investment in these lease contracts.
We fund our customer financing activity through a combination
of cash generated from operations, cash on hand, proceeds from
capital market offerings and borrowings under bank credit facilities.
At December 31, 2009 we had $7.0 billion of finance receivables
and $0.6 billion of equipment on operating leases, or Total Finance
assets of $7.6 billion. We maintain an assumed 7:1 leverage ratio
of debt to equity as compared to our Finance assets and therefore
a significant portion of our $9.3 billion of debt is associated with
our financing business.
Competition
Although we encounter aggressive competition in all areas of
our business, we are the leader or among the leaders in each of
our principal business segments. Our competitors range from large
international companies to relatively small firms. We compete on
the basis of technology, performance, price, quality, reliability,
brand, distribution, and customer service and support. To remain
competitive we invest in and develop new products and services and
continually improve our existing offerings. Our key competitors include
Canon, Ricoh, Hewlett-Packard and, in certain areas of the business,
Pitney Bowes, Kodak, Océ, Konica Minolta and Lexmark. With the
acquisition of ACS, we will now also compete with a variety of business
process outsourcing companies, as well as in-house departments
performing the functions that we are seeking to outsource. These
competitors can include large multi-national corporations, accounting
or consulting companies, smaller niche service providers and offshore
service providers in low-cost locations. We believe that our brand
recognition, reputation for our business process and document
management knowledge and expertise, innovative technology, service,
breadth of product offerings, global distribution channels, customer
relationships and large customer base are important competitive
advantages. We and our competitors continue to develop and market
new and innovative products at competitive prices and, at any given
time, we may set new market standards for quality, speed and function.
Globally, we have 130,000 direct employees
including ACS. We have over 8,000 sales
professionals, over 12,500 technical service
employees and over 46,000 employees serving
our customers through on-site operations or
off-site delivery centers. In addition, we distribute
our technology through over 6,500 Agents and
Concessionaires and over 10,000 Resellers.