Xerox, HP Deal Could Tackle Slowing Imports, China Tariffs

The board of printer and PC maker HP Inc. has rejected a takeover offer from rival Xerox stating the offer “significantly undervalues HP” but that “we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox“.

That comes amid a steady downturn in U.S. printer sales, based on an accelerating decline in import. Panjiva data shows there was a 1.0% decline in imports in 2018, which has accelerated to a 3.2% drop in 3Q.

Imports from China dropped by 20.3% in 3Q after the imposition of list 4A tariffs in September, Panjiva’s analysis shows. Instead, there’s been an increase in imports from Japan of 3.3% and the rest of the world by 6.8%.

HP Inc. also faces the issue of U.S. laptop computer imports from China facing tariffs under List 4B from Dec. 15. ahead of Dec. 15. Total U.S. imports of computers which climbed 12.4% year over year in 2018 have seen a slowdown to a 9.0% decline in 3Q. Imports from China fell by 21.6% in 3Q, showing little sign of stockpiling ahead of the list 4B tariffs.

CHINA’S SHARE OF U.S. PRINTER IMPORTS SLUMP AFTER NEW TARIFFS

Chart segments U.S. imports of printing machines by origin on a monthly and three-month average basis. Source: Panjiva

Both firms face the challenge of realigning supply chains in the face of tariffs on Chinese exports to the U.S. that may be long-lived, as outlined in Panjiva;s research Nov. 13. Imports of printers are already covered by earlier tariffs and so are unlikely to benefit from a roll-back in duties under the so-called “phase 1” trade deal.

Xerox has done slightly better in three months to Oct. 31 in maintaining its imports than HP Inc. U.S. seaborne imports associated with Xerox fell by 11.5% year over year, whereas shipments of printers linked to HP Inc. fell by 19.5%.

In terms of exposure to China, Xerox has also modestly cut its exposure to 56.2% of total imports in the 12 months to Oct. 31 versus 62.5% in 2017. HP Inc. meanwhile has a lower exposure at 32.7% in the past 12 months, though that is up from 24.2% in 2017.

A combined entity would have a more diverse set of suppliers. Outside of imports from China there is little overlap in nation of sourcing except for Japan, which represented 8.5% of shipments linked to HP Inc. and 10.1% of those associated with Xerox.

XEROX MORE EXPOSED TO CHINA THAN HP INC.