Read your valuation of Xerox/ACS, you missed a bit that I am surprised you didn't cover including the fact that the company is now 98% offshore to 3rd party vendors (Cognizent and Infinite after having a huge lawsuit after Wipro stole most of their IP 2-3 years ago) as well as having recently laid off 2500 FT employees and 7000 contractors mostly at ACS in the past 4 months with a large gap of institutional knowledge leaving replaced with untrained, badly managed cheap workers at Infinite who produce horrible quality and miss all dates (they wind up costing 4x the FTE of the workers they replaced with 3x the number of defects and issues). They (ACS) have not produced one piece of application delivery since 2006 (Georgia MMIS) and have had the New Hampshire MMIS for 9 years, 8 months , State of North Dakota was due 3 years ago and now going on five years. State of Alaska Double that. With the heavy offshore there is no product support (Steady State) meaning no real chance to make the real money where it usually lies there. ND account lost 10M alone last year and the other account were worse with a $100M shortfall overall and there is STILL no product team since OVER 2 years ago when it was disbanded. The financials are being lied about greatly with many of the losses for 3rd parties being reported as R&D when there is NO R&D. All senior executives have not stayed beyond 14 months and seems to be a revolving door on changes and no real direction (big joke was the reason for it was they stay long enough to get the bonuses and get out so they don't have to deal with the consequences of the offshoring!)... ACS will not deliver anything fully within the next 32 months missing all contract commitments and further burning through what little funds there are. In the end XRX will break them up and sell it off, There is no steady state or end support even planned with management only looking at 30-40 day cycles as Strategic Views and any major issues for delivery in front of the CIO (Alan) and CFO (Will Saunders) as being a repeat of watching the three monkeys show (See no evil, hear no evil, speak no evil - JUST DELIVER and Say Yes). They recently just rebadged over 350 FT personnel to now being offshore contractors under Infinite and Cognizent meaning there are no groups truly at ACS/Xerox other than SCM and Marketing/Contracts which the first is way understaffed and 70% contracted out already and the other with too many sales weasels that gold plate everything as a sale with the most open ended requirements for the never ending cost wheel. Anyone ever realize that NC and SC had major lawsuits against them the past couple of years for failure to deliver??? Even worse is fact that ACS is hugely violating HIPAA for all the offshore work being done including the fact that state contracts require NONE of this to be done offshore to get the 90% DHHS funds for each project. After seeing the real work for years, there is no way to turn this around after the failures in August/September/October....those were nails in the coffin for me. Any contracts that require more than FOUR times rebaselines for major state deliveries should sober anyone up, if anything the states should wake up to these huge train wrecks. Hope that CA and Wyoming that just signed on keep a close watch on their accounts for the ride they are about to get. Seriously can anyone recommend A MAJOR COMPANY that does NOT have a PRODUCT yet???
Here - go off this tangent also:
(I calculate net cash/debt as cash+short term investments+long term investments - total debt).
XRX: net debt: $7.9B (82.85% of market cap) - DISASTEROUS
So you have a company that at a stock price of around $6-7 is holding almost 80% debt to the profit ratio, that simple enough for you? They WAY overpaid for ACS and it has not produced.
I also think that while XRX certainly looks cheap, I would question if its intangible assets are really worth $12B. We should remember that just a year ago HPQ listed its intangible assets at $55B. Today it stands at $35B. ZNGA (and some other companies like APPL) has the complete opposite situation, its intangibles is only listed very low, as only $250m, which would include IP, franchises, 300+ million monthly active users etc. This must be taken into account when we look at price/book.
As far as the Palo Alto part, others were right there and the main people leaving shows that it is barely doing anything with Ursula looking at SaaS (Services as a Solution) and that means relying on ACS as there lifeline which doesn't look good at all when they did the $ 6.5B buy out without real due diligence. So the next time someone tells you to buy XRX, look for the 4th mortgage re-fi, nigerian stock scams, free lottery winnings from the internet - they have a better chance than this being at $ 12 last week....
If you want to look at this from a pure financial point then consider this
XRX: net debt: $7.89B (82.89447% of market cap) - that is HORRENDOUS!!!!
I also think that while XRX certainly looks cheap, I would question if its intangible assets are really worth $12B. We should remember that just a year ago HPQ listed its intangible assets at $55B. Today it stands at $35B. ZNGA (and some other companies like APPL) has the complete opposite situation, its intangibles is only listed very low, as only $250m, which would include IP, franchises, 300+ million monthly active users etc. This must be taken into account when we look at price/book and XRX is a low performer and a worse strategy with a high debt, not even worth a takeover with that much red ink from buying ACS which was not worth $6B. Add in Ursula who is one of the worse performing CEO's out there and has driven away most of the real star personnel from ACS and Xerox in the past year, then good luck.
Sentiment: Strong Sell
"XRX: net debt: $7.89B (82.89447% of market cap) - that is HORRENDOUS!!!!"
You would be right were it not for the fact that the bulk of the debt relates to customer financing. Once you net this out, the cash flow is more than sufficient to handle the modest debt. Furthermore, if it were truly "HORRENDOUS," then XRX's debt would be rated far lower. And if it were as bad as you suggest, XRX would not be able to return so much capital to shareholders.
Thanks for the history. The big story is that the XRX CEO is moving the company away from technology into services. She wants to leave technology behind in short. In her mind, and the minds of those on her staff, services is a better way of making money than technology.
She's wrong, of course. ACS was no Apple or Google when XRX floated tons of stock to acquire them. In fact, ACS was not the best of breed to begin with. My personal experience from the inside has been very bad with ACS on stupid HR things.
And this outsourcing to India stuff is very disturbing. ln the last 6 years, I've worked with contractors from WIPRO, TATA, and HCL. These guys are mediocre. Their college training is mediocre. I think most hate the company they work for and would LOVE to just be US citizens and work for a regular company as an employee. But they are trapped by the law and their company.
In short, be careful on how much you buy of XRX, if anything at all.
Then you are blind, deaf and dumb - there is no Product to deliver at all and there are other companies including HP, CNSI and 4 others who are and have DELIVERED....10 years and no delivery is not something you can blindly BS! Don't say 50 states when ACS has only in FIVE states (ND, NH, AK, MO, CA) and lost the other contracts including Utah, Maryland, Ohio, Indiana and 12 others in past 2 years because of those same problems. You really are clueless. In fact they lost Utah which they thought was a must win since Lynn Blodgett the CEO is there simply because on the SOW it asked WHAT HAVE THEY DONE IN THE PAST FIVE YEARS in producing any MMIS solutions. Latest scam is HIX which is in same shape, no product and already selling it as a demo that does not work.
You had most of it right. ACS wants to exit everything but the BPO market segment. They have completely outsourced applications development and maintenance to Cognizant. Cognizant is moving all development offshore, regardless of contract language and/or federal statute. This especially impacts ACS government contracts. Cognizant has raped ACS blind on T&M application development contracts that had no performance SLAs or KPIs. This means Cognizant would generate code that did not work, for which they were paid. They were then paid again to fix the code that did not function to specs initially. This cycle would go on multiple times. Cognizant was then rewarded for failing on project work by receiving the full outsourcing contract of all ACS application development. The person that orchestrated the offshoring of ACS application development and maintenance was Amir Desai. Do a Google search on the name - he did the same thing at Molina using Cognizant. He left ACS and went to HP for a year, and has now returned to ACS again. As the CIO, he was never held accountable for the project delays in NH, AK and ND - all of which cost ACS tens of millions of dollars and impacted the company's ability to successfully compete (i.e. it's hard to sell what can't be delivered). In fact, Desai's new role at ACS is actually a PROMOTION from the role he left in 2011. He is aligned very closely to Cognizant...and does their bidding under the guise of being a stand-up corporate leader.
every company has some disturb employees, XRX should do a better job selecting workers..
XRX will eventually service all 50 states in the medicare area...
if you want to pick on the worst outsource non tax paying corp..try Ge
Sentiment: Strong Buy
Was even worse than that, guy who replaced him Sandeep Soni who just left five months ago did the same thing with Infinite and wound up making things worse. Development is even worse shape with things and coding taking 6x as long and as complicated as it should NEVER be. There is no product at all right now and the last two people to try to manage it in ND and AK, Rod as Director with Steve and John as Program Managers left in the past four months after telling management the problems and never getting any changes to Cognizent or Infinite!