Xerox (XRX - Get Report) has transitioned from being a technology manufacturing firm into a document management firm -- a subtle change but also an important one. While high-end office printers still make up a major chunk of revenues, professional services now also contribute a material portion of sales, a sign that the firm is willing to embrace new trends in the industry and avoid commoditized parts of the business.
Black-and-white printing is one area that's become commoditized in the last few years. Print quality has essentially become the same across most major black and white laser printer manufacturers, so Xerox has taken its resources from black and white printing tech and moved it over to areas where its R&D can actually build a better mousetrap. Niche solutions such as color printing and digital production presses are the areas where the firm's product unit is focusing its attention instead.At the same time, services are becoming a much more important part of Xerox's business. Servicing printers historically generates more revenues than the printer's original cost, a fact that provides XRX with sticky recurring revenues. Higher-end professional services, such as document outsourcing, are becoming a more important part of XRX's sales as well. With rising analyst sentiment in shares this week, we're betting on Xerox. Also betting on Xeros, as of the most recently reported period, is David Einhorn's Greenlight Capital. The stock also shows up in Ray Dalio's Bridgewater Associates portfolio.