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Weak services growth weighs on Xerox revenue

A generic picture of a Xerox logo on a photocopier. TECOM REUTERS/Catherine Benson

By Lehar Maan

(Reuters) - Xerox Corp (XRX.N) reported a 2 percent fall in third-quarter revenue due to tepid growth in its services business and slowing demand in the printing business.

The company's shares were down 3 percent at $12.79 in afternoon trading on the New York Stock Exchange.

Xerox, best known as a maker of printers and copiers, has been focusing on services to offset a drop in printing by companies and as personal computing moves to tablets and smartphones.

Barclays Capital analyst Ben Reitzes said services margins were 8.9 percent in the quarter ended Sept. 30, well below the brokerage's estimate of 9.5 percent and the company's guidance of above 9.2 percent.

The lower-than-expected margins were likely due to "persistent headwinds in government healthcare program as turnaround plans here are taking time", Reitzes wrote in a note.

Revenue from the services business, which bring in about 57 percent of total revenue, rose less than 1 percent to $2.95 billion in the third quarter.

For a little more than a year Xerox has been spending heavily to set up Medicaid management platforms and healthcare exchanges in the United States to strengthen its services business.

"(Medicaid investments) have been a big headwind for us," Chief Executive Ursula Burns said on a conference call on Wednesday.

The company expects the investments to start reaping rewards from 2015.

Xerox bought Affiliated Computer Services Inc in 2009 to get into the services business, which includes business process outsourcing, IT services, cloud computing and data management.

The company's total revenue fell to $5.12 billion from $5.24 billion in the third quarter, from a year earlier.

Revenue from its printing business fell 6 percent.

Net income attributable to Xerox fell to $266 million from $286 million.

(Additional reporting by Sai Sachin R and Supantha Mukherjee in Bangalore; Editing by Maju Samuel)