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Global supply chain issues hit Xerox and Canon in Q3

Xerox says third quarter revenue remained “essentially flat” while Canon’s sales were up almost 10% - as supply chain conditions deteriorated significantly and caused ‘serious impact.’

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    "We are revising our revenue
   guidance lower": John Visentin
                Xerox CEO
              

“Our revenue this quarter was essentially flat year-over-year, despite a deterioration in global supply chain conditions and the Delta variant, which caused delays in many of our clients’ plans to return employees to the workplace,” said Xerox CEO John Visentin. “As a result of these ongoing challenges, we are revising our revenue guidance lower, but we are maintaining our free cash flow guidance of at least $500 million.”

Xerox posted $US1.76 billion of revenue for Q3, down 0.5 percent year-over-year.

“Supply chain conditions deteriorated significantly throughout the third quarter, negatively affecting our financial performance,” Xerox told investors. “Demand for our equipment and third-party hardware remained strong this quarter, but component shortages and logistical challenges resulted in a backlog of $265 million, approximately 2 x normal levels. Further, product and shipping capacity limitations accounted for 2/3 of the year-over-year decline in gross margin. At this point, we do not expect supply chain-related conditions to materially improve in Q4.

“The pandemic has lasted longer than expected, causing a delay in our outlook for a recovery of post-sale revenue in 2021. However, we continue to see strong correlations between vaccination rates, workplace attendance and page volumes. Growth in page volumes is translating to higher post sale revenue. For example, in September, we experienced our second-highest month of page volumes and revenues for sold services & outsourcing since the start of the pandemic. We believe a broader return of workers to the workplace is a matter of when, not if.”

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Canon reported positive Q3 growth but said its supply chain was “seriously impacted” by a shortage of semiconductors and other parts.

“Looking at the state of global affairs in the third quarter, we see that the number of new COVID-19 cases was on the rise again due to global spread of the Delta variant,” Canon said in its Q3 2021 Earnings Statement. “However, as more and more people become vaccinated and economic activity returned to normal in many countries, we did not see any major change in corporate capital investment or consumer spending. From a supply standpoint, our supply chain was seriously impacted by the shortage of semiconductors and other parts, and production activities were stalled due to strict lockdown measures in Southeast Asia.

“For Canon as well, actual demand for products around the world was generally firm, but the supply side was inevitably affected by a shortage of parts and a decline in the utilization rate of manufacturing subsidiaries due to COVID-19. As a result, we did not reach our sales plan. However, profits were almost on target as we judged the situation and made adjustments to pricing as well as strived to improve product mix.

“Compared with the previous year, sales increased by 9.8% to 833.3 billion yen, as all four business units posted positive growth. Operating profit improved significantly to 58.7 billion yen, more than 3 times higher than the previous year, and net income was 49.3 billion yen, close to 3 times higher than the previous year.

“As for Printing, due to suspended production in Southeast Asia, our hardware sales were generally lower than expected. As for the demand for hardware, it continues to steadily recover as an increasing number of people gradually return to the office. As for print volume, which is basically recovering, sales of consumables that were not impacted by supply shortages were in line with our plan. As a result, overall profitability remained at a high level that was in line with the first half.

“We have expanded unit sales of graphic arts oriented large-format printers, like the Colorado 1650, by improving product capabilities, which has led to an increasing number of dealers handling this product. As a result, third quarter sales increased 11% compared with last year.”

Canon predicts net sales for the year will increase 13.9% to 3.6 trillion yen, with net income projected to be 201 billion yen, 2.4 times higher than last year.