VOLUME 27 NO. 1
Connecting People, Ideas and Products in the Document Technology Industry since 1994
JANUARY 2020
engage ‘n exchange
Chip Miceli’s Technology Zeal,
Chip Miceli
Willingness to Share Keeps Pulse Technology Moving Forward
OFFICE TECHNOLOGY INDUSTRY PONDERS
TRENDING DEVELOPMENTS AS NEW DECADE TAKES FLIGHT
AGENT OF CHANGE: OSCAR SANCHEZ USHERS IN NEXT CHAPTER FOR EVOLVING KYOCERA FORECAST 2020: FORESIGHT, NOT HINDSIGHT, KEY TO VISION OF THE FUTURE 2020 OUTLOOK: HOW WILL CONSOLIDATION AND VERTICAL INTEGRATION AFFECT YOU?
TIME IS ON YOUR SIDE: MAKING THE MOST OF THE DELAY IN LEASE ACCOUNTING CHANGES
HELP US CONSERVE NATURAL RESOURCES
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VOLUME 27 NO. 1
Connecting People, Ideas and Products in the Document Technology Industry since 1994
JANUARY 2020
engage ‘n exchange
Chip Miceli
OFFICE TECHNOLOGY INDUSTRY PONDERS
TRENDING DEVELOPMENTS AS NEW DECADE TAKES FLIGHT
TIME IS ON YOUR SIDE: MAKING THE MOST OF THE DELAY IN LEASE ACCOUNTING CHANGES
Chip Miceli’s Technology Zeal, Willingness to Share Keeps Pulse Technology Moving Forward
AGENT OF CHANGE: OSCAR SANCHEZ USHERS IN NEXT CHAPTER FOR EVOLVING KYOCERA FORECAST 2020: FORESIGHT, NOT HINDSIGHT, KEY TO VISION OF THE FUTURE 2020 OUTLOOK: HOW WILL CONSOLIDATION AND VERTICAL INTEGRATION AFFECT YOU?
In This Issue
22
DEALER SPOTLIGHT
Chip Miceli’s Technology Zeal, Willingness to Share Keeps Pulse Technology Moving Forward By Erik Cagle
STATE OF THE INDUSTRY 16 Office Technology Industry Ponders
Trending Developments as New Decade Takes Flight By Erik Cagle
CHANNEL INSIGHT 32 Agent of Change: Oscar Sanchez Ushers in Next Chapter for Evolving Kyocera
16
By Erik Cagle
ROUNDTABLE 34 Forecast 2020: Foresight, Not Hindsight, Key to Vision of the Future By Erik Cagle
M&A PERSPECTIVE 42 2020 Outlook: How Will Consolidation and Vertical Integration Affect You? By Will DeMuth
32
LEASE ACCOUNTING 44 Time Is on Your Side: Making the Most of the Delay in Lease Accounting Changes By Ralph Petta
TECHNICAL TIPS 46 Rebuilding the Duplex Transports: Xerox DCP 700 & J75 Families By Britt Horvat
48 DISPLAY ADVERTISERS INDEX
42 6
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www.enxmag.com | January 2020
We Saw It In ENX Magazine
Maintain Your Legacy Flex Technology Group is on a mission to build a legendary national technology and office solutions organization by acquiring successful entrepreneurial dealerships. If you’re a dealer with proven leaders, a solid marketplace reputation, strong financial performance, and the ability to provide superior employee and customer experiences — we want to talk to you.
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Contributors
Staff
WILL DeMUTH is the co-president, chief operating officer of Metrofuser. His company is a leading global innovator, manufacturer and marketer of printer parts, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include remanufactured laser printer parts, remanufactured printers and service training for HP, Lexmark and Canon brands. The company’s customers include office equipment dealerships, online retailers, repair centers and MPS service providers nationwide.
Susan Neimes Publisher & Managing Editor
RALPH PETTA is the president and CEO of the Equipment Leasing and Finance Association (ELFA), the trade association that represents companies in the nearly $1 trillion equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. ELFA has been equipping business for success for more than 50 years. For more information on equipment financing, please visit www.EquipmentFinanceAdvantage.org and follow ELFA on Twitter @elfaonline.
Erik Cagle Editorial Director
TECHNICAL ARTICLE CONTRIBUTOR
BRITT HORVAT works for The Parts Drop, a company whose primary business is providing parts, supplies and information for Xerox brand copiers, printers and fax machines. You can find more information, including many of Britt’s past ENX articles on their website www.partsdrop.com.
Ronelle Ingram Contributing Editor
Christina Kim Editor
engage ‘n ex engage ‘n exchange
To Our Subscribers and Supporters
We sincerely T hank You
engage ‘n exchange
México & Latin America
La Revista del Distribuidor Dealer Source
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Corporate Office
Susan Neimes - susan@enxmag.com Erik Cagle - erik@enxmag.com 10153 1/2 Riverside Drive, Suite 729 Toluca Lake, CA 91602 tel. 818-505-0022 • fax. 818-505-9972
Best Wishes for a Healthy, Happy and Prosperous New Year! From All of Us at ENX Magazine/ENX The Week in Imaging
ENX Magazine is published monthly by Affinity Business Communications, Inc. Any inquiries should be sent to: enx@pacbell.net or mailed to the corporate office. Copyright ©2020 by ENX Magazine printed in the U.S.A. All reproduction in whole or part is prohibited without written permission. Cover photo from depositphotos.com
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www.enxmag.com | January 2020
We Saw It In ENX Magazine
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NBS / ENX | January 2020
Since 1985
Your Prime Source T EL: 800.729.8320
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All prices, rebates, and availability are subject to change without notice. Please call us to confirm.
Nuworld is not responsible for typographical errors or inaccurate specifications. Registered trademarks are properties of their respective owners.
Copiers • Printers • MFPs • Faxes • Scanners E m a il: info @ n u w o rld in c.co m
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FAX: 562.921.1167 NBS / ENX | January 2020
Erik Cagle
State of the Industry
Office Technology Industry Ponders Trending Developments as New Decade Takes Flight
Y
ou really have to hand it to 2019—it was a year that really knew how to make an entrance, not to mention an exit. We rang in the past year with the news that Staples was acquiring DEX Imaging, and closed it out with a testy little letter exchange between Xerox and HP that started out friendly before turning a bit hostile. In between stood an avalanche of M&A deals, equipment roll-outs, increased movement toward adjacent technologies and familiar faces in new places. That’s old news now, with the exception of the fluid Xerox-HP tango. A new year and a new decade await the office technology universe, and while the expectation is for more of the same in terms of evolution and combination among the industry players at every level, the great unknown of what the future holds is always exciting. Change, generated by the evolving needs of the office space, is being thrust upon us. How we react to it will go a long way toward deciding who will be a part of the narrative being scripted. While we cannot predict the future, we can measure trends— both recent and long developing—that will certainly impact and play some degree of role in how 2020 unfolds. To that end, we have assembled a wide array of industry notables from every corner in the office technology neighborhood to offer their insights as to which trends should be followed in 2020, along with suggestions as to how the dealer community should respond to them.
Client Intimacy
One of the subtopics of conversation emanating from the combination of DEX Imaging and Staples is the need to get closer to the client. Mike Stramaglio, president of MWAi—which falls under All Covered’s Business Consulting Services—believes the mission for his company and others within the industry is to adopt that philosophy. Part of it entails providing products more in the way of services for a broader, deeper and more significant manner of selling.
THERE’S A GREAT OPPORTUNITY FOR DEALERS WHO ARE PROGRESSIVE AND MAKING THE APPROPRIATE CHANGES INSIDE THEIR ORGANIZATIONS TO BE ABLE TO GET CLOSER TO THAT CLIENT. Mike Stramaglio, MWAi
Stramaglio believes the Xerox-HP scenario is further evidence of a convergence aimed at tunneling closer to the 16
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www.enxmag.com | January 2020
end-user customer. “On a broad scale, I think HP and Xerox are a microcosm of everything that everybody else needs to do,” he said. “The top dealers are going to continue to take full advantage of that big migration with the strategy of companies like Xerox and HP. There’s a great opportunity for dealers who are progressive and making the appropriate changes inside their organizations to be able to get closer to that client.”
IT’S HARD TO BE IMPORTANT TO MANY PARTNERS, SO IT’S GOOD TO ALIGN WITH A CORE THAT YOU ARE STRONG WITH, CAN BE TRANSPARENT WITH AND BUILD SOLID RELATIONSHIPS. Troy Olson, Les Olson Co.
There’s something to be said for dealers developing close relationships with the OEMs, as well. With the rash of ongoing acquisitions, it is important for the independent dealer to focus on what it does well and continue down the path of growth areas in its business, according to Troy Olson, chief business development officer for Les Olson Co. Those dealers that are “built to last” and nimble enough to transition into new revenue streams will continue to be successful, even as the dealer market around them shrinks. That’s where the strong relationships with OEMs come into play. “It’s hard to be important to many partners, so it’s good to align with a core that you are strong with, can be transparent with and build solid relationships,” he said. “Those strong relationships can come into play because things can change depending on Wouter Koelewijn, some of these acquisitions.” Y Soft Wouter Koelewijn, chief of products for Y Soft, firmly believes that customers want their suppliers to be more consultative, offering comprehensive solutions that solve their IT costs, as well as using technology that aligns with their digital transformation initiatives such as cloud and mobile. “This means that dealers will need to rethink their business model and partner with technology providers more closely,” Koelewijn said. While the Internet of Things (IoT) is not a brand-new phenomenon, it has witnessed some growth in the office space and continued on page 18
We Saw It In ENX Magazine
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Office Technology Industry Ponders Trending Developments as New Decade Takes Flight I BELIEVE WE WILL SEE DEALERS BECOME MORE SUCCESSFUL BY CAPITALIZING ON IoT DEVICES AND THE DATA THEY PROVIDE. Laryssa Alexander, ECI Solutions
will continue to flourish, according to Laryssa Alexander, president, field service division of ECI Software Solutions. Alexander feels IoT’s ability to enable dealers to keep a more-watchful eye on what is happening in the offices of their clients will help solidify that relationship. “By connecting all the equipment dealers manage to a central database, dealers can triage their service calls, anticipate issues before they happen and understand how the equipment is being utilized by the end-user,” she said. “I believe we will see dealers become more successful by capitalizing on IoT devices and the data they provide.” Another ongoing development of note is software trending into subscriptionbased models. Joseph Odore, product manager-document and imaging, Office Products Unit of Panasonic, notes the traditional on-premise licensing model is going away. Meanwhile, the subscription route offers flexibility and enhances the overall ability to update with the Joseph Odore, Panasonic movement towards the cloud. For dealers that are not offering software-based services and document solutions, Odore feels it is an opportune time for them to revisit their business model. “Customers don’t want dealers to just sell them a copier, scanner or some lumpy piece of hardware,” he said. “There’s so much information out there and the buyer knows what they want before our salesmen walk through
the door. More and more of them are going to start asking questions about what you can provide. If it’s only hardware, you might be losing them.”
Risk Versus Reward
There’s no denying the growth potential offered by managed IT, and with the continued onslaught of businesses being victimized by cyberattacks, the subject has garnered mainstream attention. Jeff Gau, CEO of Marco, has heard horror stories from fellow dealers who had less-than-bulletproof protection on their own end, leading to corrupted email systems and compromised clients. As Gau observed, “You don’t want to be the pointy end of that stick.”
SECURITY WILL CONTINUE TO BE AN EXPANDED AREA OF OPPORTUNITY, BUT ALSO AN EXPANDED AREA OF RISK, BOTH FOR THE END USER AND THE RESELLER. Jeff Gau, Marco
It is a prime caveat for dealers looking to expand into managed IT, particularly for companies that attempt to build their own as opposed to reselling branded or white-labeled security platforms. “Security will continue to be an expanded area of opportunity, but also an expanded area of risk, both for the end user and the reseller,” Gau said. “Resellers need to be very careful as to what message is being conveyed at the sales rep level and clarify what they actually can do in the support of their offering.” One person who thinks ink will be making a comeback in 2020 is Lee Flood, director of sales for Pearson-Kelly Technology. He notes that certain manufacturers, including Kyocera, have been developing and releasing production printing devices, and Pearson-Kelly is taking a hard look at moving down that path. He sees opportunities in the Lee Flood, market for customers who have needs Pearson-Kelly for high-quality marketing materials, brochures and mailers, with a desire for quick turn times. “There are several vendors we’re looking at, large manufacturers who have long track records and others who are in the R&D phase,” he said. “The key is understanding the sales and servicing side of it, ensuring that it makes sense to offer it to your customer base. And is that a customer base you want to go after? The ink side has a lot of questions.” Another proponent of diversification into adjacent services is Dean Swenson, president of The Swenson Group. Stretching beyond the MFPs to bring more value, customer retention and revenue can be attained by annexing ancillary offerings such as continued on page 20
18
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www.enxmag.com | January 2020
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Office Technology Industry Ponders Trending Developments as New Decade Takes Flight physical security and hosted voice solutions, among other areas, according to Swenson.
I RECOMMEND ENSURING YOUR DEALERSHIP IS VERY STRONG ON ITS CORE MFPs AND SERVICE PROPOSITION BEFORE BRANCHING OUT. Dean Swenson, TSG
“I recommend ensuring your dealership is very strong on its core MFPs and service proposition before branching out,” he said. “Once that critical component is optimized, look to layer additional, adjacent services that you can support in terms of adding internal talent or through partnering.” While the industry’s brisk pace of acquisitions continued in 2019, a merging of OEMs in 2020 could lead to a slowing of private-equity influx into the space, according to Chip Crunk, president and CEO of RJ Young. He also expects one of the private-equity groups will execute an exit strategy from its current holdings.
I ALSO BELIEVE IT WILL BE IMPORTANT TO CONTINUE MOVING UPSTREAM INTO PRINT PRODUCTION, WHICH CAN BE DIFFICULT FOR SMALL DEALERS. Chip Crunk, RJ Young
Like his contemporaries, Crunk believes it’s vital to diversify from both a manufacturer and offering standpoint. “As we continue to see more steps into the services space, we need to find
new ways to add value for our customer base,” he said. “I also believe it will be important to continue moving upstream into print production, which can be difficult for small dealers.” Andy Slawetsky, president of Industry Consultants, holds a different view of the private-equity phenomenon. “Outside money will continue to invest in dealer acquisitions,” he said. “In fact, it will increase in 2020, with new players entering the field.” Slawetsky also expects 2020 will see security as the “hardware-selling hot Andy Slawetsky, button.” As more OEMs market security Industry Analysts more intensely and the message garners momentum, he added, dealers will increasingly use it as a selling tool going forward. One of the biggest trends seen by Todd Hirshorn, president of RingByName, is dealers looking to expand cloud-based as-a-solutions offerings to generate additional revenue from their existing base of customers. He believes dealers need to find synergies in other services in order to introduce new solutions to their base. Todd Hirshorn, “(Dealers) will look for offerings RingByName which can be sold to all of their clients, not products or services suited for only a small percentage of their base,” he said. “This gives them the best chance for success with the largest number of customers.” Many dealers are continuing to dig deeper into their OEM partner’s portfolio for alternative technologies beyond print. Advanced Imaging Solutions (Minnetonka, Minnesota) is leveraging Konica Minolta’s Workplace Hub, which marries a color MFP with a server and allows dealers to provide a reliable, robust and secure solution to a client for both IT infrastructure and traditional copy/scan/fax/print capabilities.
INVESTING IN YOUR PEOPLE IS IMPERATIVE, IN MY OPINION, AND WILL HELP WITH ANY NEW ENDEAVOR A DEALERSHIP DECIDES TO TAKE ON. Stephanie Keating Phillips, AIS
“Offering solutions like these services to clients that are more relevant to the smart workplace will help businesses drive efficiency that will result in increased customer satisfaction,” said Stephanie Keating Phillips, director of solutions for Advanced Imaging Solutions. “Investing in your people is imperative, in my opinion, and will help with any new endeavor a dealership continued on page 22 20
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www.enxmag.com | January 2020
We Saw It In ENX Magazine
Office Technology Industry Ponders Trending Developments as New Decade Takes Flight decides to take on. Implementation of education and training opportunities will develop extremely knowledgeable employees and make these transitions smoother for the dealership.”
M&A Consequences
One of the major talking points, unavoidably, has been the evolution of the robust M&A activity that has expanded to include more venture capital and cross-channel players—i.e., Staples obtaining DEX Imaging. Nick Capparelli, managing director, LEAF Commercial Capital Inc., a subsidiary of People’s United Bank, N.A., believes it opens the door to other cross-channel suitors, including (but not limited to) Best Buy and Amazon.
THOUGH SOME FORECASTS POINT TO SLOWDOWNS IN CAPEX AMONG LARGER COMPANIES, WE EXPECT HEALTHY DEMAND FOR GROWTH CAPITAL IN THE NEAR TERM. Nick Capparelli, LEAF
“Throughout 2019, there has been strong demand for capital to maximize enterprise capability and valuation, whether that’s through acquiring or positioning a business to appeal to acquirers in a marketplace that’s currently full of compelling options,” Capparelli said. “Though some forecasts point to slowdowns in capex among larger companies, we expect healthy demand for growth capital in the near term.” Capparelli believes that continuing to power enterprise growth with smart investments in verticals and new business areas will be key, as will investing in marketing, sales, infrastructure and other essentials. “Dealers should also consider investing in backoffice efficiency to reduce ongoing opex,” he said. “If those efforts require the assistance of a capital provider, partnering with one that has demonstrated expertise in the industry and the capacity to fund all of these investments in an integrated, valueadded way will help to streamline the process and avoid missed opportunities.”
AI AND BIG DATA ARE BECOMING KEY TECHNOLOGY TRENDS DRIVING ALL KINDS OF BUSINESS IMPROVEMENTS. Jim Coriddi, Ricoh
Jim Coriddi, vice president, dealer division for Ricoh USA, notes that at a time when the subscription economy has grown (300%-plus in the past seven years), customers are demanding 22
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www.enxmag.com | January 2020
more workflow and less infrastructure—consumption-based solutions that scale with them. The view of the dealer as a provider of technology and professional services pales in comparison to the clients’ desire to have their providers furnish guidance and perspective on the industry, including where their business is headed, how the client could do better and how the dealer can help. “AI and big data are becoming key technology trends driving all kinds of business improvements,” Coriddi said. “Technology in the office space will need to leverage these new trends to drive increased business improvements.”
LINKEDIN, PARTICULARLY, IS AN EFFECTIVE PLATFORM FOR ENHANCING YOUR BRAND RECOGNITION AND GENERATING NEW BUSINESS. Brent Martin, ARLINGTON
Dealers and distributors alike have stepped up their efforts to market their products, services and programs through social media, notes Brent Martin, director of marketing for ARLINGTON. Using vehicles such as LinkedIn and Twitter has bolstered B2B relationships significantly in the past year, and Martin notes that the use of video posts is an added component that can drive home messages quickly, cheaply and effectively. “There seems to be a growing social aspect to the B2B relationship through social media,” Martin said. “LinkedIn, particularly, is an effective platform for enhancing your brand recognition and generating new business. It would behoove dealers and distributors to get more involved in their company pages, particularly for value-added video content.” The movement toward adjacencies that are within the same ballpark as MFPs continues to garner steam for practical reasons. David Clearman, director of marketing and PLS Sales at Muratec America, points out that both label printing and package printing equipment has grown at a brisk pace the past few years. In fact, adhesive and pressure-sensitive labels have grown David Clearman, Muratec 9% each in the past year while packaging has shot up 19%. “What’s driving that is the technology from different manufacturers, whether it’s Konica Minolta, or an OEM partner that’s built the product that Konica markets to its dealers in the wholesale channel,” Clearman said. “Those are going to determine how this business grows and which way it trends. We’re getting a lot of good feedback, a lot of questions from dealers who want to see more of the product.” We Saw It In ENX Magazine
Fearless Forecasts: Industry Leaders Gaze into Their Crystal Balls
A
ny look at the new year would be incomplete without a little prognostication. Here’s a sampling of views from our panel of industry notables as to what 2020 may hold in store.
Chip Crunk, RJ Young: I predict that at least one of the manufacturers will be bought or merged with another in 2020. I also expect to see at least one of the private equity groups begin to execute an exit strategy from their current holdings.
Laryssa Alexander, ECI Software Solutions: Dashboards and data analysis tools will become even more crucial for dealers. Dashboards will allow dealers to dig further into the data they already mine, and give them better visibility into their business and the needs of their customers. On the OEM side, I believe that manufacturers will start to commit to artificial intelligence. In 2020, the OEMs will most likely release more and more predictive analytics features, allowing this industry to see the same gains from AI technologies as others have.
Lee Flood, Pearson-Kelly Technology: I think we’ll see mega dealers continue to grow and buy up organizations. But it’s also a good time to be a local dealer, because we have that flexibility to be the local presence, bring new offerings to the table and be agile.
Nick Capparelli, LEAF: Staples’ acquisition of DEX Imaging is most likely a sign of things to come. It points to even more pressure on businesses that are perceived as “copier dealers” to escape commoditization by offering a unique value proposition and focusing on the most profitable segments of the market. For many dealers, this will involve substantial investments in new capabilities, staff, fleet, marketing and other initiatives. Demand for capital to power these activities is likely to remain strong, and finance providers with industry expertise and integrated offerings developed just for these needs will have a strong edge with office products dealers seeking growth capital. David Clearman, Muratec: I think we’ll continue to see the trend of smaller dealers selling their businesses. I hate to see those small dealers go, because those small- to mid-sized companies have been a large part of our business model for the last 20 years. There will be opportunities for some of their customers to see new owners with new strategies come into some of those markets. That’s exciting to me—some of the larger dealers are getting into new markets for themselves, and making them their secondary and tertiary markets. I think these are big opportunities for us while there’s a trend toward increasing the business in those areas. Jim Coriddi, Ricoh Americas: The pace of change isn’t stopping anytime soon. The ability to effectively empower digital workplaces is key to future success. It is now more important than ever for dealers, manufacturers and everyone else involved to step up, so they can confidently guide and assist customers through and beyond their digital transformation. “Stepping up” means delivering more than print. Today’s customers need partners who understand how people, processes and technologies shape back-end process and front-end success. In short, they need knowledgeable allies in their corner who can help them protect information, manage technologies and connect the end points—technology, data, applications and people—that form the backbone of their business.
Jeff Gau, Marco: In 2020, there’s going to be some manufacturer consolidation, and we’re starting to see some of that play out. As for the mega dealers, those over $100 million in sales, they’re going to invest more in IT companies because they’re starting to take it more seriously. Some of the dealers who said they’d never do it are moving that way now because they have to. Todd Hirshorn, RingByName: Dealers want 2020 to be the first year their income statements show meaningful revenue from sources other than their core office equipment. Wouter Koelewijn, Y Soft: As cloud adoption for print infrastructure and print management services increases, customers will transition from an OEM/dealer relationship to a broader IT provider that manages these services for them. Print becomes outsourced. The OEM/dealer channel will compete with a new set of competitors who provide a wider set of IT services, and print will be one of many service offerings. Brent Martin, ARLINGTON: We’ve seen a lot of business going to the large DMRs, the Amazons of the world. While I don’t see anything stopping that business from continuing to grow, I really think there’s going to be a resurgence in the B2B relationships. While there’s obvious value in those deals and the discounts you can find, I truly feel that consumers, particularly in the B2B environment, do value the relationships, the intimacy within that B2B relationship. That’s going to continue to grow, because people want to deal one-on-one, face-to-face with folks. Joseph Odore, Panasonic: AI is going to be a lot more prevalent this year. We’re starting to approach the point in the tech now where it’s starting to get a little bit cheaper. More companies are going to start adopting it. I think we’re going to start seeing more of that growth curve increase in AI, from both a business and document management aspect. Kofax is pushing it hard these days, and there are a ton of smaller companies getting into the space. It’s just a matter of time before AI becomes a lot more mainstream and available to companies at a more economical price. Dean Swenson, The Swenson Group: I believe the M&A activity and consolidations will continue, not only for dealers but also manufacturers…maybe Xerox and HP? ♦
We Saw It In ENX Magazine
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Erik Cagle
Dealer Spotlight
Chip Miceli’s Technology Zeal, Willingness to Share Keeps Pulse Technology Moving Forward
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f the office technology dealership industry had its own Mount Rushmore, it’s safe to say one of the etched profiles would be that of Chip Miceli. The president and CEO of Pulse Technology, the soonto-be Schaumburg, Illinoisheadquartered dealership, is nothing short of an industry rock star. He can be spotted at various manufacturer events, particularly those held by Sharp, Canon and Kyocera. Actually, Miceli recently returned from Japan, where he toured the global headquarters of Epson and was intrigued with the possibilities offered by that OEM’s flavor of inkjet printing. Miceli is a frequent speaker at events held by various organizations, including the BTA, and often sits on dealer panels to offer his views on any number of topics relevant to the office technology space. Add in peer-group participation, advisory boards and various consultative hats, and you have an executive with thousands upon thousands of frequent flyer miles to his credit. Why the adoration? Miceli has a reputation for being a nononsense executive who speaks his mind. He loves the giveand-take interaction offered by peer groups and speaker panels, and is always willing to provide perspective to fellow dealers on just about any subject under the sun—from the value of managed services to the best red Cabernet wine (more on that later).
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Chip Miceli, president and CEO of Pulse Technology
Miceli is the caretaker of a company founded by his father, Vince, in 1955. Chip and his brother, Victor, bought out their father in 1988, and 30-plus years later the former Des Plaines Office Equipment (DPOE) has continued down a growth path, aided by the acquisition of McShane’s Office Solutions in 2015 and Kramer Leonard in 2017. Bolstered by product acquisitions, including office furniture and interactive flat-panel displays, Pulse Technology has topped the $30 million plateau. We talked to Miceli to learn more about Pulse’s technology push, its new headquarters and future acquisitions, as well as his take on some of the industry’s hottest topics, including Xerox’s quest to obtain HP. How was business in 2019? What were the keys that dictated your success? We Saw It In ENX Magazine
MICELI: I didn’t expect it to be such a tough year. We saw a lot of customers consolidate, sell out. When they get bought out by companies located out of state, we lose that business. We’ve been offsetting the lost customers with new ones while making sure we keep our existing ones. It’s just been a strange year. We’ve had some decent months here in the fourth quarter, so hopefully we’ll finish up strong. What sets Pulse Technology apart from the competition? MICELI: We’re very innovative and technology driven; we like to bring new technologies to our customers. During the recent Epson trip to Japan, I got to see an inkjet product that’s going to change or disrupt the marketplace. Customers like the fact that we bring different technologies to help
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Chip Miceli’s Technology Zeal, Willingness to Share Keeps Pulse Technology Moving Forward MICELI: Not yet. We’ve had one in our office for three months now and it hasn’t broken down. We’re running the hell out of it. From a service standpoint, our techs are going to like it. The only difference is, if you’re using a regular 20-lb. paper, the paper curls because it doesn’t come out dry. Some people might not like that. I don’t have a printer in my office, so when I print to it, the paper is ready to go by the time I reach the printer. So it doesn’t bother me any.
Chip Miceli (left) and brother Victor celebrate the company’s 60th anniversary
their businesses. We were one of the first dealers to jump in with interactive boards for conference rooms. We were one of the first companies in MPS, and we started in MNS 10 years ago. We’ve got some cool stuff we’re planning on for 2020. During your trip to Japan, were you impressed with the company’s PrecisionCore inkjet technology, which does not use heat? Do you see this as a game changer, or merely another tool in your arsenal? MICELI: I believe the technology is going to go to inkjet eventually. It probably won’t happen in the next year, but as the print quality of the product comes around, I think it’s going to overtake laser. More and more people are being cautious about the environment, and the fact that it doesn’t have ozone coming out the side of it and uses less power is going to lead customers in that direction. The question is, can they live with the current copy quality of it? In testing it, we’ve found that if you use better paper, you’re going to get moredesirable results. Do you see any obstacles with the technology? 26
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In fact, you plan to offer it in MPS programs for Illinois and Indiana clients. What is going to be the key for proliferating this type of technology? MICELI: We’ve already pinpointed some organizations for which we think it’s going to be more successful than others. In Illinois, all of the casinos are now able to do sports betting. This is a good product for them to print the bet sheets every day at an economical price. Also, a lot of schools have resorted to using Chromebooks. They are always printing out tests and information off them; they’re still printing like crazy. We use it to print our invoices and it works well for us. That’s a competitive market.
You’ve never been one to shy away from offering new technologies if you see an opportunity to sell within your client base, but do you have a sense for why some colleagues are loathe to branch out? MICELI: A lot of dealers are just set in their ways. They’re doing well and aren’t interested in learning more. They get settled in and stick with what they know. When I talk to dealers across the country, it always amazes me how antiquated they are in their thinking. For any dealer who’s been doing this for a while, they’ve gone from analog to digital, and that was a big change. You have to wonder why these dealers aren’t evolving. The companies I bought in Indiana weren’t evolving; they didn’t do print management. One did some break/ fix IT, but didn’t do MNS. The other one didn’t do anything in technology, it only sold office supplies and furniture. I shocked them a couple of weeks ago by buying a technology chair. They said, “What the hell’s a technology chair?” You program the app to your height and weight, and it adjusts the chair to the way you should be sitting in it. If you
The admin team at Pulse Technology celebrate the holidays We Saw It In ENX Magazine
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Chip Miceli’s Technology Zeal, Willingness to Share Keeps Pulse Technology Moving Forward out today. Unfortunately, my thinking is if that you don’t diversify into managed services, video walls or other technologies, your print business is going to dry up. Of all the newer ancillary offerings that are coming to the foreground, which ones would you endorse, and which ones would you avoid?
A video wall and flat-panel displays adorn Pulse Technology’s showroom
like the way it feels, then you’re good. If you want to change it, you can and then lock it in the way you do with a car seat. The cool part is, when you’re sitting in it incorrectly, the app notifies your phone that you’re not sitting correctly. People like to sit at edge of the chair instead of putting their back into the back of the chair. The back of the chair holds your back up, and if you don’t do that, it leads to back aches. I’m always looking for something different to bring to my customers. One of my people came to me and said he wanted to do a different ERP to give us another product in that area. I knew right then that I wanted to be involved, because currently one ERP provider is buying up everybody, which is going to put dealers in a situation in which they’re going to be paying more money for a product that they’ve been using for years. Dealers are being held hostage because there’s no competitor right now. We put together a product that competes against other ERPs. I didn’t love it at first, but we were inventing the wheel. We’ve pretty much got the wheel taken care of now. Do those dealers who refuse to adapt and decide to sell out actually help fuel M&A market? 28
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MICELI: That’s why you see all these companies buying everybody now. Marco is growing by leaps and bounds by buying all these small dealers who don’t want to grow. Part of the problem for some dealers is that they don’t have the money to grow. About a month ago, I was talking to dealer who said he was selling his business. I asked what they do and he said, “Sell copiers. What else should we be doing?” They needed to invest in MPS, but he said that he couldn’t afford it. That’s the problem, and that’s why they sell.
MICELI: I’d never say something isn’t a good idea until I tried it and failed. Today, I think the one area that people should be talking about is cybersecurity. Dealers can team up with some of these organizations that do it all for you and allow you to sell their services. That is a no-brainer. As dealers, we know how to sell monthly payments. Ransomware protection is something on people’s minds today and should be easy to sell. We’re going to kick that off next month. We’re a little bit behind in getting on board, in my opinion, but it took some time to sort through the choices. How is the move to your new Schaumburg, Illinois, headquarters progressing? MICELI: We’re pushing to get into Schaumburg sometime in December. It took a little while to get things done. Right now, we’re putting floors in, and we have the furniture coming in two weeks. Hopefully, we’re able to do a
I REALLY DON’T WANT TO SEE THE INDEPENDENT DEALER DISAPPEAR, SO I’M REALLY INVOLVED TO HELP OTHERS AND MAKE THEM SUCCESSFUL. Chip Miceli The deals that interest me the most are the ones in which they sell, but still own a piece of the action. Visual Edge is an example. Some dealers believe the industry is going to grow further, but they just don’t have the money to increase their business, so they make a partnership with Visual Edge in the hopes that when they sell the company lock, stock and barrel, they’re going to make more money than if they had sold
Christmas party there for some of our customers. The grand opening will likely be (this month). It’s tough; my brother Victor has been handling most of it. He’s in sales, so it’s taking him away from selling, but he’s taken our vision and ran with it. Unfortunately, we didn’t realize how much time we would have to spend getting it done. Hopefully, it will get finished in the next 30 days.
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Rhinelander
Chambersburg
ONE DAY TWO DAYS COMING SOON
Chip Miceli’s Technology Zeal, Willingness to Share Keeps Pulse Technology Moving Forward Will you be active in the M&A space in 2020? MICELI: We’re always looking, but I don’t know how far I want to travel. I never thought I would be in Indiana, either, but the opportunity came and I took advantage of it. There are a couple of other companies we’re looking at in Indiana, so if things move along well, we’ll probably end up buying them. The only other state that might work for us is Michigan. I don’t envision straying outside of the “U” around Lake Michigan. I thought we were going to go into Wisconsin, but nothing materialized up there. What is the value of being active in the industry? MICELI: I believe the industry’s been very good to me. I’m involved in different organizations because I love to give back. I really don’t want to see the independent dealer disappear, so I’m involved to help others and make them successful. Hopefully, the dealer network never goes away. Every dealer looking to grow their business should be involved in a peer group. There’s quite a few of them out there now. When we started the Select Dealer Group, the goal was to exchange
Employees of Pulse Technology get into the holiday spirit
Epson; they sought out ideas that would help their products be more disruptive in the marketplace. What was your dealership’s greatest accomplishment in 2019? MICELI: The new facility in Schaumburg will just blow people away. I can’t wait until it’s done and unveiled. We made some good inroads into Indiana, growing our business out there and making it more successful. Also, I hope some of the advice I’ve given dealers throughout the year has helped them grow more.
FROM OUR PERSPECTIVE, I WANT TO GROW MNS AND START REALLY PUSHING CYBERSECURITY. THOSE ARE THE TWO GROWTH AREAS THAT ARE REALLY VIABLE. Chip Miceli ideas and best practices. Regardless of how big or small the dealer is, I can always take home ideas they have that I can use in my organization. That’s what’s helped me get to where we’re at today. Once SDG was filled up, I told the BTA that it needed to start another peer group. They did, and that one (PRO Dealer Group) is doing well. I like being an influencer. As part of the Sharp advisory board, we help them come out with better products and improved programs for the dealers. The same holds true in going to Japan with 30
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What was the biggest challenge you faced in the past year? MICELI: The biggest challenge is finding salespeople who can sell this type of technology. That’s the biggest challenge that all companies have today. There’s not enough people out there who can talk the talk that we need to discuss in this industry, let alone find people in sales who really want to sell. It’s probably always been that way, but I believe in the last couple of years, it’s been our biggest challenge.
What are your goals for 2020? MICELI: It’s going to be an interesting year. I think we’re going to see a lot more companies sell out, and hopefully we’ll be on the receiving end of a couple. Even though it’s an election year, I think there’s going to be a shift in this tariff issue that’s screwing up our economics. I believe our current president is going to do something to settle down this tariff war, which will take care of the issues we’re having with overseas vendors. Election years are supposed to be great for the economy, but the last couple have not been so hot. Hopefully this year is going to be a little different. From our perspective, I want to grow MNS and start really pushing cybersecurity. Those are the two growth areas that are really viable. We’re going to do a big push for Epson, so I’m hoping that their product is going to help me grow that segment of the business. I believe that inkjet is the future, and the faster I can learn how to sell it, the more ahead of the game we’re going to be. As the industry continues to contract and evolve, what will be the keys to success for the dealer community? MICELI: If I was selling the Xerox or HP lines, I’d make sure that I have a backup line. If that merger goes through and they put someone in charge of it to make it successful, it will hurt the dealer network. If they screw it up like
We Saw It In ENX Magazine
they’ve done everything else so far, then it will be great for our network. I’m not sure which one will buy the other, but sooner or later they will become as one. Here’s the problem with that merger: Xerox has branches all over the United States, so they can be more disruptive than the dealers, especially if they’re selling HP or Xerox. If you go up against a Xerox branch, and you’re doing print management with the remans, (Xerox) can sell HP OEMs for cheaper than we can sell remans. That makes for tough competition. What do you like most about your job?
Employees and their spouses enjoy time together
MICELI: It’s fun. I get to travel and meet new people all the time. In Japan, I met a lot of nice people who are in the largeformat industry, so I made a lot of new acquaintances. I’ve been having a lot of fun in Indiana because there’s a brandnew product, office supplies, I’m talking to people about…well, it’s old product, but new to me. That’s what keeps me doing this. I’ll probably keep at it until the day God says “Time’s up.”
Outside of work, what do you do for fun? MICELI: I have a 5-year-old grandson who lives with me. That’s my buddy and main priority. When I came home from Japan, I could hear his little footsteps tearing through the house. He ran right up the stairs and into my arms. I’m looking forward to watching him grow up. I love tasting different red wines and collecting them. Keeping track of them
We Saw It In ENX Magazine
is almost a full-time job. I’m a Cabernet drinker, so if you like Cabs, there’s a couple nice ones out there. Del Dotto has a really bold Napa Cab. Castello di Amorosa has a nice Cab and a nice blended Cab. It all depends on what your pallet can handle. If you normally drink inexpensive wine, then you taste more expensive wine, your taste buds do change and then you won’t want to drink the inexpensive wine anymore. ♦
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Erik Cagle
Channel Insight
Agent of Change: Oscar Sanchez Ushers in Next Chapter for Evolving Kyocera Ever since taking the helm as president and CEO of Kyocera Document Solutions America in the summer of 2018, Oscar Sanchez has embraced the changes that are afoot within the industry. Change has been an active agent within the walls of Kyocera itself, with Sanchez bringing aboard key players who have extensive experience outside the industry.
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he company brought in IT veteran Kurt Brown to lay the foundation for Kyocera’s evolution into managed IT services, and also added a mixture of outside talent, executives with industry background and companydeveloped personnel to provide a rich, diverse, forward-thinking collective. Sanchez also unveiled a new brand identity: put knowledge to work to drive change. It comes down to helping customers leverage their information and deriving value from it—as his own company grows and evolves, Sanchez wants Kyocera’s partners to benefit from it. We sat down with Sanchez to discuss the many changes brought about in 2019 and his vision for a transforming and growing Kyocera Document Solutions America.
How would you characterize 2019 from Kyocera’s perspective? What were some of the highlights in your estimation? SANCHEZ: It has been a year of change and transformation across the industry, but especially for Kyocera. We have been working on many changes in our processes, in the way we conduct business and in our organization. We’ve built a leadership team with a range of experiences and talents that can help us to achieve that. By bringing together the best people for the job, we can convey this message of 32
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change clearly and effectively to our employees, our dealers and our clients. We’ve laid down the foundations for growth for years to come, and drawn up our strategy which will allow us to achieve our ambitious goals. 2019 has certainly been an intense and productive year and, despite all the changes, we have been able to achieve significant growth both in revenue and in profit, so we hope to close this fiscal year with very good results. The project that we have embarked on this year is one which will take time to come to fruition, but it’s one that we’re positive is already bringing about results. What were your biggest takeaways from the company’s 2019 Innovate dealer meeting? SANCHEZ: We went into the 2019 Innovate dealer meeting ready to present a landmark project which will define our future with a substantial change, so you can imagine that we were anxious to see how our dealers reacted. Their excitement and enthusiasm for all of the changes and challenges that we put forward was my personal highlight of the meeting. Having them onboard is crucial to the success of our project. At the 2018 Innovate dealer meeting, partners were provided with a sneak peek at the company’s new TASKalfa Pro 15000c. Can you provide us with an update on that product? SANCHEZ: We’ve carried out a controlled launch with three clients in real working environments, and the results have been exceptional. The initial feedback that we’ve had from
Oscar Sanchez, KDSA president and CEO
those clients and the first impressions we’ve had, has built up expectations to a very high level. I’m pleased to be able to tell you that the TASKalfa Pro 15000c will launch to the channel in April. We’re proud of this product, and excited to enter into the transactional printing market with a device that we believe is the best of its kind. The company unveiled a brand identity with “Put knowledge to work to drive change,” in October. Why was this necessary? Tell us about what it represents. SANCHEZ: In simple terms, “put knowledge to work” is the statement that defines what we want Kyocera to be in the future: a brand that transforms information into knowledge, and that knowledge into value. Data is the biggest source of competition between businesses in the current market, and it’s where the challenge lies for organizations of all shapes and sizes. Managing that
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information in order to get real value from it, exploiting every piece of data to build success, is a challenge. Kyocera is here to help companies manage their information in order to gain a true competitive advantage from it. Our ambition is to be a leader, but to lead you must be clear in what your goals are, and this renewed brand identity was one of the first steps that we identified as we began this transformation. We are united across the globe in our strategic aims. Visually and strategically, Kyocera is the same, whether you are in New Jersey, Kyoto, Amsterdam or Sydney. We are working together to provide our clients with an outstanding and sophisticated experience. Recently, the company hired Kurt Brown, who previously oversaw a billion-dollar IT solutions business, as its vice president of software and ICT services. Talk about the value you expect Brown to provide for Kyocera, its direct operations and dealer partners. SANCHEZ: Kurt Brown did a great job at Dimension Data, and that’s why we brought him in. He’s playing a key role in the evolution of our organization— from managed print services to managed IT. Already, he’s making an impact. We’ll end 2019 with a substantial amount of business in ICT Services, which will continue to grow under his leadership. This technology has to be a driver of our business, and it’s exactly where Kyocera is looking for the best technology across a range of areas that our clients are demanding: cloud solutions, cybersecurity and digital transformation. Earlier in the year, you tapped former Verizon exec Frank Zupa as VP of customer operations. Tell us about what he brings to the table and what type of impact he is expected to make. SANCHEZ: Improving our customer experience is a fundamental objective. In this area, in after-sales, Frank Zupa plays an essential role. He adds value to our processes and technology in all our after-sales activities, and his is exactly the expertise that we were looking for.
The fact that Frank comes from outside the industry helps us to widen our horizons and perspectives. We are so used to what we have been doing and how we have been working with our clients, but Frank brings a fresh point of view. He works on all the possible touchpoints and makes them experiences for our clients. Our end goal is to exceed our customers’ expectations every time we interact with them. Frank is helping us to achieve that. These hires, and others, further underscore your desire to import execs who have had illustrious careers in tech and other high-performing fields. What impact have these outside perspectives provided in formulating the company’s going-forward strategy? SANCHEZ: We’ve built a team of directors and strategic management experts that establishes a clear, realistic pathway to help us to achieve what Kyocera needs to become the organization we want to be in the years ahead. This team is the product of a combination of internal talent, people with experience in the industry and those who come from other sectors. Together, they provide us with the perfect mix of creativity, talent and forward-thinking ideas, which not only helps us to grow, but also helps our employees to develop. Beyond the arrivals of Kurt and Frank, we’ve also welcomed Natalie Cumberbatch as vice president of human resources. She was with Child Mind Institute for seven years, making it a “Great Place to Work.” The latest arrivals have been in the marketing team, with Jason Dizzine as senior director of product marketing and planning with decades of industry experience, and Jose Estebanez as senior director of integrated marketing communications, having led a successful transformation project of Kyocera’s marketing efforts in the EMEA region. How do you see Kyocera evolving technology-wise over the next few years? We Saw It In ENX Magazine
SANCHEZ: All our products will be interconnected. For us, the sale of a printing solution should be accompanied by an integrated solution—for example, document management. Our offer goes beyond hardware, but includes software, ECM and IT services. In a world where technology has connected everything around us, we can only see a future in which our technological platforms are linked, and that’s why we are focusing on ICT business as the pillar at the heart of our future. This, alongside important innovations like the TASKalfa Pro 15000c, which helps us to move into new areas of print like the transactional industry, provides us with technology to give us a platform we need to continue our growth over the years to come. Clearly, the channel has witnessed its share of changes in recent years. In your opinion, what does the future hold for our industry? SANCHEZ: It’s important to remember that our dealers are the perfect example of resilience. When you think about our industry a few decades ago, it was incomparable. They’ve led the change from analog to digital, from monochrome to color and now from hardware to software. This evolution helps us to be prudent. We know that what has worked in the past won’t necessarily work in the future and we have to differentiate ourselves from the rest, looking to sell different products in a different way. That’s why we look to build up strong relationships with top-class partners. What are your goals for 2020 and what will you look to accomplish? SANCHEZ: We have an objective for growth of more than 9% for the year and we are also considering strategic acquisitions. Meanwhile, we will continue the journey of our transformation. We are convinced that we are on the right path, and in 2020 we will see that our new leadership team will settle in and take the next step in facing up to the challenges which lie ahead. ♦
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Erik Cagle
Roundtable
Forecast 2020: Foresight, Not Hindsight, Key to Vision of the Future
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t can be said that the future rarely arrives unannounced, at least from a technology standpoint. Revolutions begin as murmurings among a select few, then gradually increase before reaching a crescendo of fullblown evolution. The business world consists of people who detect change early on (or at some juncture of the evolution), those who deny change is happening or those who react when the change is thrust upon them. The 2020 edition of our industry forecast roundtable continues a talk track that began years ago: the evolution of the office technology dealership space. We have lined up five cracker-jack experts whose views take a connect-thedot path that clearly illustrates major industry developments, changes and the need to diversify. Many of these changes/developments reflect significant modifications in the way business is done, and carry technological and generational undertones as drivers.
for Toshiba America Business Solutions. Their message carries a common denominator—there is still great opportunity within our industry for those dealers willing to invest in change and find different vehicles to monetize that opportunity. While the page may not be going away, the handwriting is clearly on the wall. Did 2019 meet with your expectations? Were there any twists or surprises that altered how the year played out? DAZO: The biggest twist is the HP-Xerox saga. One big move like this could really impact the industry, so it will be interesting to see how it plays out. Mega dealers are still growing; I think we saw more deals in 2018 than we did in 2019. As far as the manufacturers, we definitely see them doubling down on print, some more on the production side, along with wide-format, packaging and labeling. Some are
DECLINING VOLUMES PER USER AND CONTRACTION IN THE IMAGING CHANNEL IS LIKE TALKING ABOUT POLITICS OR GLOBAL WARMING: PEOPLE BELIEVE WHAT THEY WANT TO BELIEVE, FACTS AND FIGURES BE DAMNED. West McDonald , Tigerpaw Software Our blue-ribbon panel consists of Randy Dazo, group director, Office Document Technology, for Keypoint Intelligence; West McDonald, vice president of business development for Tigerpaw Software; Joe Contreras, commercial marketing executive, Office Solutions, for Epson Americas; Mike Marusic, president and CEO of Sharp Imaging and Information Company of America; and Bill Melo, chief marketing executive 34
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focusing on other areas such as the IT side, going into the smart workplace, digital displays and other office-related technologies. It’s interesting to talk to some of the OEMs and manufacturers about what they see for the future. A lot of them are pretty similar—they’re talking about workflow, going digital, focusing on the SMB customers, cloud, mobility, robotics and security. I get a feeling they’re focusing We Saw It In ENX Magazine
West McDonald, Tigerpaw
more on those other areas besides print, but print is still a core part of their business. There’s a lot of talk about dealer transformation and passing on some of their knowledge within the MPS and IT services spaces. That will have implications, including for mega dealers who haven’t really gotten into managed IT. It’s taking them away from the box and exploring other revenues to enhance their services capability. McDONALD: While we saw everything that transpired with Clover, LMI, Xerox and HP, I’m surprised it didn’t happen earlier. Given my experience in working with my last division, we had pretty good insight into the number of print volumes per user and other metrics. Declining volumes per user and contraction in the imaging channel is like talking about politics or global warming: people believe what they want to believe, facts and figures be damned. With all of the transactions, the bigger dealers keep getting bigger, and the smaller ones become fewer and farther between. When you look at the numbers and the facts, it doesn’t necessarily mean that it’s a horror story. The imaging continued on page 36
Forecast 2020: Foresight, Not Hindsight, Key to Vision of the Future channel is still a strong one, and it has a certain stickiness to it because documents are always going to be a part of the business process; you get rid of documents in some places, but regulations make them pop up again. The reality is, there’s no new reason to print. In the end, I try to couch that with not being a doom-and-gloom observer, but rather a realist. My expectation for 2019 was that the industry was going to contract, and it did, and that there were going to be some shakeouts with OEMs and secondary providers, and that happened. The other expectation was we were going to see a much-stronger number of dealers who wanted to remain independent, diversify their services and move into managed IT. That was validation that there are a lot of very smart independent office equipment dealers out there who are not selling their businesses but are looking to grow, and they’re increasing the number of services they offer customers to reap that growth. I think it’s exciting any time you see a channel changing what they define themselves as. In 2020, we’re going to see a lot more evidence of that. CONTRERAS: I’ve changed companies and roles, and have been able to build a program within Epson and really start to evangelize and message out the value and benefit of inkjet. From an industry perspective, inkjet is getting a lot more attention and will continue to do so as Epson spreads the word to both the channel and end-user. What has also been interesting for me is the continued consolidation and acquisitions, both at the dealer and manufacturer level. It’s never a dull moment following the news on Xerox and HP, and what that could mean for the future of the industry. MARUSIC: This year was a great year for Sharp. In fact, the past two years have been incredibly successful years for the company. Since Foxconn became a majority shareholder, we have achieved 12 straight quarters of profitability, and the past two years have been among the best market-share growths that we have experienced in over two decades. This has been the case even while the overall market declined in 2018, and I’m excited 36
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and their willingness to embrace a solution so tied to a competitive OEM. What impact does cross-channel combinations such as the DEX Imaging-Staples pairing portend for the industry? Is this an outlier or the sign of things to come?
Bill Melo, Toshiba
to share that we are currently operating at 116% year-over-year revenue growth for FY 2019. MELO: On a macro level, it’s hard to imagine anyone anticipating some of the events that transpired in 2019. Certainly, the continued big-dollar M&A activity that continues to play out has affected the industry and threatens to do so further in 2020. The big news, of course, is the ongoing exchange between HP and Xerox—two of the industry’s largest and most-influential companies. Whether Xerox acquires HP, HP acquires Xerox, or neither, the continued consolidation of the
CONTRERAS: It’s definitely a possibility. The Xerox-HP potential merger is surprising, with Xerox trying to take on HP, as I thought it would be the other way around. Selfishly speaking, I think it’s going to cause a lot of disruption within those two companies, knowing how difficult it is to bring companies together and get them operating on the same page with a consistent strategy. I think it will take some time. HP went through that with the Samsung acquisition. I think as Xerox and HP figure things out, so to speak, it’s going to probably benefit other companies before it benefits them. I welcome it; the fact that they’re busy trying to build that organization and get it running smoothly gives us more time to jump on the market with our inkjet technology. MARUSIC: The market is certainly experiencing a series of changes from across all areas: margin compression, business mod-
...THE MANAGED PRINT VALUE PROPOSITION HAS BEEN BUILT UPON THE PRICE DELTA BETWEEN OEM AND NON-OEM SUPPLIES. AS THAT DELTA SHRINKS, MPS PROVIDERS WILL NEED TO BUILD THEIR VALUE PROPOSITION ON DELIVERABLES BEYOND SIMPLE COST REDUCTION. Bill Melo, Toshiba industry at both the OEM and reseller level continues to shape the business. Another big story for 2019-2020 is the battle for printer supplies between HP and the variety of alternates, including remanufactured and new-build compatibles. To a large degree, the managed print value proposition has been built upon the price delta between OEM and non-OEM supplies. As that delta shrinks, MPS providers will need to build their value proposition on deliverables beyond simple cost reduction. Lastly, the acquisition of DocuWare by Ricoh is unprecedented. Both companies have been careful to characterize DocuWare as an independent entity and pledging business as usual. It will be interesting to see the reaction of non-Ricoh resellers
el shifts, private equity and the entry of retail companies into the space. I believe that the DEX Imaging-Staples pairing is a development that is somewhere in the middle. It is definitely not an outlier, and I believe we will see more of it in the future, but it doesn’t have to be a sign of things to come with all the accompanying doom and gloom. There is a reason the dealer community always over-performs relative to corporate direct operations, and that is its entrepreneurial spirit. (Dealers) are open to new opportunities and are able to adapt to change quickly. The key is to make the change; don’t wait. The dealers know their customers better than anyone. It is up to them to take that knowledge and provide the services the big companies cannot,
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into office, I don’t think there’s interest in moving into that market.
MELO: The DEX-Staples transaction was unique from the standpoint of the characteristics of the acquirer more than anything else. There have been bigger acquisitions of resellers (e.g. IKON, Danka) but in those cases, the acquirer was an OEM looking to expand distribution. In this case, the acquisition by a reseller who’s well established in one channel is looking to expand into a different delivery methodology. Toward that end, I expect that the Staples-DEX transaction is unique. There is likely to be continued consolidation in the channels, but I expect it to be more conventional—i.e., OEMs buying distribution or dealers buying dealers.
With organizations throughout the industry combining through M&A or forging agreements to partner from a technology standpoint, what will be the key for independent dealers successfully serving the SMB space? MARUSIC: To succeed in this new environment, independent dealers will need to change their approach to one that highlights the value they bring to the table with their services, rather than trying to have the most-competitive hardware prices. For example, they should look for ways to showcase their understanding of network connectivity to show customers how to operate more efficiently. They will need to be open to new product offerings and services, keeping in mind that their customers are facing the same challenges they are: new competitors, pricing pressures and a need to focus on their core. I always tell our dealers, “You are in the information and collaboration business, not the print business.” That provides a world of opportunity and is directly in line with the challenges their customers face. The dealer can solve those problems and become a key, integrated part of their customers’ business rather than the “cheapest quote.”
McDONALD: Because I’m now in the managed IT world, that means a lot of things. I’m still doing managed print and still working with office equipment dealers, but it’s expanded into talking to people who are doing VoIP, managed IT services, drones and other cool things. They’re seeing the same kinds of activity, with ConnectWise buying Continuum, one billion-dollar company acquiring another nearly as big. The DEX-Staples thing is not just endemic to the office equipment world, it’s just a trend that is happening in any business vertical that touches technology that touches the office. It’s really fascinating to watch. Regardless of whether it’s good or bad for the industry, I think there’s a lot of flexibility in what the offerings are going to look like. When there are a lot of healthy, smaller players and they’re not playing in each other’s territory, there is a lot of room for innovation. But when these consolidations
Mike Marusic, Sharp
what is the end goal for DEX and Staples? Hopefully, they become more efficient, but it doesn’t create any new market growth. DAZO: I’m not so sure about other office supplies organizations doing something like that, though they could. There’s not a lot of them; there are mostly smaller, regional office supplies companies. I’ve always said our dealer industry typically has the most revenue compared to IT channels, systems integrators and VARs, which are much smaller organizations. I don’t see other channels going after the dealer channel. We see a convergence of IT and office equipment, and also the traditional A/V channel. We see office equipment dealers doing a really good job in those spaces. Some are doing it through acquisitions and others are doing it organically. I still think the office equipment dealers have an advantage because of the revenue they can potentially acquire. For the office equipment dealer market, there’s more of an urgency to transform versus some of the other channels. We are seeing some convergence going on between IT and A/V. IT definitely
TO SUCCEED IN THIS NEW ENVIRONMENT, INDEPENDENT DEALERS WILL NEED TO CHANGE THEIR APPROACH TO ONE THAT HIGHLIGHTS THE VALUE THEY BRING TO THE TABLE WITH THEIR SERVICES, RATHER THAN TRYING TO HAVE THE MOSTCOMPETITIVE HARDWARE PRICES. Mike Marusic, Sharp happen, what you see is the loss of choice, and that usually leads to a loss in innovation, which could be limiting for customers. I think the appetite for these kind of things will continue well into 2020. I think there has to be a reckoning; 38
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seems to be the link because of everything being connected to the internet anytime, anywhere. If dealers want to expand into cloud, mobility or digital displays, you have to have some kind of IT capability. As far as a Best Buy crossing consumer
MELO: Historically, dealers have benefitted from the disruption caused by M&A activity in their market as branch closings, personnel transfers, territory reassignments, etc., have created opportunities to address customers who might have otherwise fallen through the cracks. Dealers should be prepared to act quickly to such market disruptions. McDONALD: For the SMB space, there is phenomenal opportunity. There are a lot of gaps that the bigger players leave wide open. Frankly, these bigger players don’t even care if somebody else takes it. They’re chasing completely different types of customers. For the dealers willing to look into diversifying their services, there are a lot of cool things that they can sell to the same customers. When I moved into the managed services world, in my mind it was really servers and desktops. Man, have my eyes been opened. It’s commercial audio and video, HVAC, dark web and
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Forecast 2020: Foresight, Not Hindsight, Key to Vision of the Future unified communications. The Internet of Things has been huge for control systems within offices—there are so many things that you can sell to a customer. For those who are serious about growing their business and chasing the SMB, there’s a huge opportunity for them. In the managed print world, not including equipment, we’ve been looking at about $17-$24 per user. In the managed IT world, if you’re bundling packages, it’s anywhere from $98-$150 per user. It’s all high-margin revenue. There are huge opportunities for people willing to chase the SMBs. DAZO: Part of it is diversification. Ten or 15 years ago, there were 6,000 dealers, and now we’re at about 2,000. So the dealer community has been shrinking, as have the manufacturers. When I talk to some dealers, I don’t think they’re feeling the same pain when it comes to revenues and margins that the manufacturers have. I think you’ll definitely see more consolidation on the manufacturer side within the next decade. There are still too many, there’s too much competition and not enough pages overall. When it comes to dealers still making the margins, it’s funny because the dealers often are dictating and still maintaining pretty good margins, even on the equipment side. The manufacturers are going to have to consolidate in order for the margins and efficiencies to take effect and be beneficial for them, or they’re going to have to take some of that margin back from the dealers, who are still making 35-40 points. And even their operating margins are still in the double digits.
tiate, whether it’s technology like inkjet or value-added services like managed IT.
Joe Contreras, Epson
or have future generations take them over. There will be some attrition for those who don’t want to invest in their business. Those who remain will have to make a transformation into solutions and services. I have a hard time seeing some of the smaller dealers getting into production and wide-format. On the production side, they just don’t have the capital to be able to afford to build the infrastructure necessary. They will be forced into areas like network services, managed IT, workflow and cloud solutions, because there’s an opportunity to add without building an entire infrastructure. CONTRERAS: The key is to have something that will differentiate. As you see the larger mega dealers and increased acquisitions, there’s net greater buying power with the manufacturers they work with. For the dealers remaining independent, depending on their size, they have to be able to compete. And to do that, it can be simply based on the products that they’ve been offering historically. They
OTHER MANUFACTURERS HAVE INKJET TECHNOLOGY AS WELL, AND EPSON CONTINUES TO PUSH THE ENVELOPE IN CREATING THAT COMPETITION AND DISRUPTION IN THE MARKETPLACE. OTHERS WILL ULTIMATELY HAVE TO FOLLOW SUIT AT SOME POINT. Joe Contreras, Epson For the smaller dealers, there’s some level of transformation needed. That entails doing things around workflow and solutions, for which the revenues aren’t as good as hardware and supplies. It will help for them to differentiate their capabilities as opposed to not doing anything. A certain amount of these dealers will likely look for exit strategies; they will either be acquired 40
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have to change it up and differentiate, and that’s where we feel Epson brings a value to the table with PrecisionCore and our inkjet technology. We’re enabling them to change the conversation and be more flexible when it comes to the price points they’re taking to market. Partnerships are integral for independent dealers to get into this key space and allow them to differen-
Which major talking point (future office, security, managed services) do you think will move to the foreground in 2020? Why? McDONALD: People definitely have to be talking about acquisition, because I think 2020 is going to start to see some activity slowdown. There is a window for all of this frenetic activity, and a window for how much money that’s available out there—especially private equity—for the office equipment space. I’ve been a huge proponent of flat-rate models of print moving away from cost-per-page. I think we’re going to see a lot more of that in 2020. A lot of dealers I spoke with in the past were reticent to move away from costper-page, but they aren’t anymore. They’re looking at device-based, user-based flat models. Big players in the market space, like Marco and Konica Minolta, are having huge successes with that model. In 2020, it’s going to be the year of cost-per-page becoming less of a thing, and diversified services and flat-rate models becoming more prevalent. MELO: Security continues to be a concern of both large and small organizations. Understanding the security features of the products and solutions that you represent, as well as how to best apply these to customers, will be a great distinguishing feature for resellers. Cloud and mobility will also continue to become the standard in the office. Companies are challenged to staff IT to sufficient levels, and resellers that can provide cloud-service offerings will be advantaged. Similarly, business users are increasingly away from their workstations and require the same level of access to information and business services as if they were sitting at their desks. Resellers need to be able to promote mobile printing and the security features associated with those capabilities. DAZO: We’ve been talking about the transformation of services for a while. It started with managed print services, managed workflow and managed IT. I’m bullish on managed workplace services, owning the entire workplace when it comes to technology. I think it’s a very obvious area where our industry should be
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moving into. There are some players really focused on that, where we’re seeing some success today. I think those who stick to it and have a really good strategy help not only transform their organizations, but help transform the dealers to get into these spaces. It’s kind of a natural progression for our industry. The growth of smart workplace technologies does keep the manufacturers relevant in the office, especially when people are consuming more information through other digital technologies as opposed to paper. We talk a lot about automation and how that should benefit the end users when it comes to automating document processes. It’s just a natural progression for us to also own the automation that happens in other areas of the office, as well. We have to think, as an industry, about how to remain relevant. CONTRERAS: I think you’re going to hear a lot more about inkjet because of
have inkjet technology as well, and Epson continues to push the envelope in creating that competition and disruption in the marketplace. Others will ultimately have to follow suit at some point.
Randy Dazo, Keypoint Intelligence
what we’re doing in the market. Every dealer we talk to is aware of it; they understand that it’s real and it’s coming, so how does that affect their business? How can they incorporate it, or how are they going to address it when it comes to either their customers asking for it or having to compete against it? Other manufacturers
WHEN I TALK TO SOME DEALERS, I DON’T THINK THEY’RE FEELING THE SAME PAIN WHEN IT COMES TO REVENUES AND MARGINS THAT THE MANUFACTURERS HAVE. Randy Dazzo, Keypoint Intelligence
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MARUSIC: We certainly believe the office of the future is a major talking point for 2020. With the recent launch of the Sharp Synappx applications and the upcoming launch of the Windows collaboration display from Sharp, we are working to address some of the collaboration and smart office needs of the future. Customers want their work technology to be as convenient as their personal technology. Sharp truly believes that the ability to make all of your technology work seamlessly is now expected in the workplace, and the ability to work with the cloud is key. For example, millennials are now the largest group in the workforce, and they are demanding that technology be more compatible with remote work, shared workspaces, mobility and the desire for greater autonomy. Addressing their expectations addresses the needs of the company, making their people more productive. ♦
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Will DeMuth
M&A Perspective
2020 Outlook: How Will Consolidation and Vertical Integration Affect You?
O
ver the past decade or so, consolidation in nearly every industry has come about due to the abundance of cheap money, as well as the proliferation of investors in private equity and venture capital looking to find investments. In the heyday of our industry, dealers and imaging suppliers of all shapes and sizes could not only survive, but also thrive. But as with any maturing industry, competition and margin erosion were inevitable—perhaps even healthy.
This also meant that consolidation was on the horizon, and we started to see that within several markets as early as 2005. The toner industry consolidation began with Clover’s acquisition of MSE in 2014 and the demise of LMI, and it was unclear whether another major player could compete with Clover, or whether they would continue to dominate that market. Parts remanufacturers/distributors consolidating with toner remanufacturers began in 2009 and we’ve seen the mixed results that came from combining these two sister operations. 42
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As for dealer consolidation, it’s harder to pinpoint exactly when it began, but the speed with which it’s taken off the past few years has been staggering. The rise of the super-dealer is a real thing, as is the potential extinction of the mom-and-pop break-fix shop. This all brings us to recent years, when we’ve started to see channel integration take place. In 2017, Office Depot acquired Compucom, and more recently Staples made a surprise entry into the dealer market. But the biggest shockwave occurred just recently. 2019 ended with a bang on the heels of one of the biggest stories of the year—and possibly the next iteration of business strategies in the imaging channel. Norwest Equity Partners—the private-equity company behind Marco, the country’s largest megadealer—acquired Clover Imaging Group. This acquisition brings together a formidable team of parts and printer remanufacturing, field service and toner remanufacturing under one roof. The imaging industry isn’t as neat and organized as the structure you would find in the automotive parts industry. After labor, toner and parts are the costliest expenses to a service operation. With the stroke of a pen, NEP has redefined their business in one acquisition, giving Marco a tremendous competitive advantage.
Vertical Integration for Dummies (Written by a Self-Proclaimed Dummy)
We first need to define what we mean by vertical integration. We Saw It In ENX Magazine
It’s a business strategy in which a company purchases its suppliers and/or distributors to control the supply chain. The goal: giving the acquiring company a competitive edge over non-integrated companies. End users are more likely to choose the integrated firm’s products or services because, ideally, the costs are lower, the quality is better or the product is tailored directly to them. Vertical integration certainly has its share of both pros and cons. Advantages • Lower prices • Avoidance of supply disruption • Increased market control • Creation of economies of scale • • • • •
Disadvantages More rigid to trends Harder to manage well Corporate culture tension Reduced flexibility Loss of focus
Without debating either side, the important point is that once the integrations occur, there’s no going back. So moving forward, it’s more about looking at the execution of the strategy and the reaction by all factions and third parties.
Twilight of Consolidation
The low-hanging fruit has been picked and the consolidation story is running on fumes in the supplies market. Sure, it will trudge on for a while, but it appears that vertical integration may leapfrog that playbook— bankers and private-equity companies may see greater upside in that value pitch.
As the imaging channel has matured, we’ve moved along with the various strategy phases, each mirroring the health of the industry at that time. While vertical integration is a typical strategy, it is largely executed toward the end of an industry cycle because it is considered one of the riskiest and more capital intensive. In a sense, it is also a signal to the industry of where things currently stand. While we could argue when the industry began to experience flat growth, we can say we saw more consolidation toward the end of this nine-year period than the beginning. Full-on vertical integration could now begin to happen in half that time due to the remaining density in the supplies market. How will the vertical integration strategy be processed by the channel? Your guess is as good as mine. Will the
different business-segment industries develop countermeasures? Copy it? See it as business as usual? Escalate an arms race? There are also a number of large segments that will influence vertical integration based on how its members react. For example: • Device manufacturers— HP, Canon, Xerox • Competing megadealers— Applied Imaging, Impact Networking, Gordon Flesch Co. • Wholesale technology distributors—Office Depot, Staples • New-build toner manufacturers—Aster, Ninestar, Print-Rite It’s going to be an exciting year as the various industry leaderships respond and execute on the unfolding strategies. Perhaps most importantly, how will these
changes affect you? Are you a dealer who might be acquired? If not, will you support your competition by buying supplies from someone who might take your orders today—and take your customers tomorrow? If you’re not going to be part of the frenzy for consolidation, how is this moment going to create opportunity for your company to grow? The answers to these questions will all be answered soon enough. I would love to hear your thoughts on what the best direction is. Stay independent or integrate? Something else? Email me at wdemuth@metrofuser.com. They say hindsight is 20/20. Well, it’s 2020 now, so it’s time to look at your future goals and how to achieve them. If not, you’ll end up looking back at this moment and wondering why you didn’t. ♦
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Ralph Petta
Lease Accounting
Time Is on Your Side: Making the Most of the Delay in Lease Accounting Changes
C
ertain private companies, nonprofits and taxexempt organizations that lease equipment have been given an important advantage in implementing new accounting rules—more time. The Financial Accounting Standards Board (FASB) recently announced that the effective date of the new lease accounting standard, Accounting Standards Codification Topic 842 (ASC 842), for private companies and nonprofits has been delayed by one year, with implementation beginning after Dec. 15, 2020. The delay will allow smaller organizations to get their accounting processes in place while they continue to enjoy the advantages of leasing equipment. Since ASC 842 went into effect in December 2018 for public companies, FASB members have expressed that companies with limited resources can learn from the implementation performed by large public companies that possess more staffing and resources. Having additional time to get through at least one annual audit cycle and regulatory cycle should help smaller reporting companies and private companies increase the quality of their implementation.
Challenges to Implementation
For companies that are still working to implement ASC 842, the one-year extension is particularly welcome to address the following areas that have posed challenges: • Review of lease contracts and what constitutes a 44
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lease. These can include multiple-element arrangement contracts that combine services, software, hardware, consumables and/or financing. These are often found with air-separation units or blood diagnostic analyzers, as well as contracts for energy, such as power purchase agreements and supply contracts. Some lessees are having difficulty bifurcating the cost of the various elements, such as consumables, from the embedded lease of the asset. • Software implementation. Currently, most lesseeoriented software products are largely real estate focused and enterprise sized. Lease accounting software for smaller and mid-sized companies is not as fully developed. The software for larger installations can be cost prohibitive, and the vendors may be overbooked with ongoing installation projects. The delay gives software solutions vendors time to review and improve their customer solutions. • Consulting with auditors on more complex technical issues. This includes interpreting the sale leaseback accounting rules, or selecting appropriate incremental borrowing rates. Limitations surrounding sale leasebacks are a little more complicated under the new standard. Users who accumulate assets over a time period to aggregate into one sale-leaseback transaction We Saw It In ENX Magazine
for expediency purposes may want to discuss the new rules with their auditors. Selecting an appropriate incremental borrowing rate (IBR) also seems to be generating questions in implementation, especially since smaller lenders do not often have these rates handy. Other issues pertain to conforming and converting existing financial reporting approaches to those found in a new system. For instance, a lessee may have to convert a “full month” approach to recognizing rent expense in the first month of a lease, and instead use an actual days expense approach with a new system. This will result in an adjusting entry, and the change to a new approach may require filing a Tax Accounting Method Change with the IRS. • Tax accounting. Lessees must better understand which leases are true tax leases and which are loans for tax purposes. Previously, most operating leases were considered tax leases. Now lessees must be sure to (i) properly characterize the lease and (ii) separate taxdeductible interest expense (which may also be limited by the new tax laws) from imputed non-tax-deductible interest. In this case, lessees would deduct the rents accrued to be paid. • Migration accounting issues. Assuming lessees properly recorded their operating leases before
the transition, some items on their balance sheet must be rolled into the new Right of Use (ROU) asset (for example, when rents paid differs from rent expense accrued due to a lease with a three-month rent holiday). Also, for lessees with deferred book gains, for instance from prior sale leasebacks, the deferred gain balance flows directly to equity on implementation; previously, they were amortized as a reduction against current rent expense. So, the lessee will see an increase in rent expense although nothing had changed with the lease, only the implementation of the new standard.
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Benefits of Leasing Remain
For the nearly 8 out of 10 U.S. businesses that finance their equipment acquisitions, the reasons they do so remain intact under ASC 842: • Tax management. Leasing allows lessees to more-efficiently manage some of their taxes; when they cannot utilize all the deductions, the lessors can—and are able to—pass the ben-
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efits through via lower rates. It also shifts the risk of future tax-rate increases to the lessor. The Tax Cuts and Jobs Act of 2017 makes tax leasing even more important than previously. Finance 100%. Arrange 100% financing of equipment, software and services with 0% down payment while often still recording less than 100% on your balance sheet. Up-to-date technology while avoiding residual value risk. Acquire more and better equipment more frequently compared to loan financing and avoid residual risk (because the lessor assumes that risk). Improved ROI/ROA compared to a loan. Rather than capitalizing 100% of an asset, a capitalized lease is generally reported at a lesser amount. Cash-flow management. Make smaller, more-manageable and flexible payments while the equipment generates revenue. Benefit from bundling. Bundle the equipment, installation, maintenance and more into a single, easy-tomanage solution.
• Preserving cash and bank credit lines. Use available and often-limited cash resources for other areas of the business, such as expansion, improvements, marketing or R&D. • Outsourcing asset management. The equipment financing company can manage an organization’s equipment from delivery to disposal. A user no longer needs to figure out how to resell an asset. • Customizing terms. Set customized payments to match cash flow and even seasonal income fluctuations. • Hedging against inflation. Lock in rates with a lease to avoid future inflation. It’s important to check with a professional tax advisor or accountant who can address your business’ particular situation. With adequate information and additional time to implement ASC 842, lessees can continue to reap the advantages of financing. For more information, please visit www.equipmentfinanceadvantage. org/newLAR.cfm. ♦
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Britt Horvat
Technical Tips News Briefing
Rebuilding the Duplex Transports: Xerox DCP 700 & J75 Families
Xerox Digital Color Press DCP-700/700i/770 and Color Press C75/J75; also similar to Versant V80, V180
I
t’s time for a good two-sided adventure. When they’re working right, the duplex transports on the DCP700 and C75/J75 do a wonderful job moving paper. However, when something starts slipping and pages start jamming (often intermittently), it can lead to frustration for a technician—a major time-sink. Having a clear understanding of all the moving parts and knowing what to replace is key to saving time when solving the problem. We’ll cover the many parts in the upper chute assembly, the pinch rolls on the lower chute and the idler pulleys and drive belt on the inner front wall of the main transport drawer. We’ll concentrate on the DCP700/ DCP700i/DCP770 and C75 / J75 models, though a lot of this information will prove similar for the Versant V80, V180. There are several areas with parts related to duplexing: • Duplex lower chute (six pinch rollers with their springs) • Drive motor assembly (motor, gears and drive coupling) • Duplex upper chute assembly (drive gears, one-way drive pulleys, and six transport rollers with their associated bearings) • Main transport drawer (idler pulleys and drive belt) The lower chute assembly is the metal plate that drops down, allowing you to clear jams from the duplex area. The only parts on the lower chute of significance would be the six pinch roll assemblies (hard plastic) and their retaining springs, which maintain nip pressure. If you find the paper is skewing in the duplex, you want to check these pinch rolls to make sure they all spin easily enough—clean the plastic cradle bearings, check that they’re not out of round from wear and add a drop of silicon gear grease for lubrication. Also check that the tension springs are all providing similar pressure. If these pinch rollers don’t turn easily, they add a lot more stress on 46
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www.enxmag.com | January 2020
the whole drive train, so checking and oiling them is an important first step. The duplex drive motor assembly (068K59340, sells for around $85) is seldom the actual cause of drive problems. The motor itself has a part number on the label, 127K52720, although that number is not actually valid. The drive assembly’s coupling drives a matching coupling on the rear of a shaft on the left side of the duplex upper chute assembly. The drive shaft reaches all the way to the front of the unit. There, you’ll find a 22-toothed D-shaft drive gear, which mates up with a one-way drive gear/pulley (20T/24T) on the front end of the duplex out roller. This piece drives the duplex drive belt, which moves a series of oneway pulleys, to turn the rest of the duplex rollers on the upper chute assembly. The upper chute assembly is mounted under the main transport drawer. The drive belt gets its tension from idler pulleys (some smooth, and some 24T), which are mounted on the inner front wall of the main transport drawer. Most of the duplex problems stem from a combination of increasing friction due to dirt and wear of the pulleys and bearings, and the subsequent failure of the one-way clutches (pin-bearings) found in the drive gear/pulley and the three one-way pulleys. Getting to the duplex drive belt and upper chute assembly takes a little bit of work.
Removing the duplex drive belt and upper chute assembly:
• Pull the main transport drawer (transfer drawer) all the way out to the service position • Remove the drawer front covers: left cover (three screws), fuser release cover (two screws), center cover (two screws), right cover (two screws) and drawer handle (two screws) • Lift the fuser out • Remove the second BTR assembly: disconnect a connector and a high-
DCP700 Duplex Upper Chute Assembly
voltage lead, take off second BTR front cover (one screw) and then rock the unit towards the right to lift it out • Remove the registration module: disconnect four connectors at front, remove two screws (one front left, one rear left) and remove the spring-loaded guide pin near the front end of left rail (three screws and rotate the spring/pin assembly), but be careful, as it’s spring loaded • Remove two metal brackets inside the front wall of main drawer: left bracket (three screws) and central bracket (two screws) • Remove the duplex drive belt tension pulley bracket (one screw) • Remove the duplex drive belt, taking careful note of how it is routed (see photo #1 for the layout, as viewed from the front end) At this point, getting the upper chute assembly off is easy enough—here’s a quick anatomy. The duplex in rollers (x2) on the right end of the assembly are driven by D-shaft pulleys, which don’t tend to wear out. The next three rollers, which we’ll call duplex transport rollers, are all driven by one-way drive pulleys. The one-way clutches in these pulleys can get weak over time and should be replaced if the duplex is slipping. Similarly, the drive gear/pulley on the front of the duplex out roller (on the far left) also has a one-way bearing that can start slipping. All three one-way pulleys and the one-way drive gear/pulley should drive faithfully in the clockwise direction.
We Saw It In ENX Magazine
Duplex parts you may need
Duplex Upper Chute Assembly Orientation:
• Duplex upper chute assembly (metal plate with six rollers, one-way pulleys and drive gears; 054K35936 or DC700DXUCA)
Retail cost approximately $400 for new OEM
Or, to rebuild the upper chute assembly Duplex upper chute rebuild kit (includes all below): • Duplex transport drive gear kit (DC700DXDGK) (one 20/24T one-way drive pulley/gear, one 22T D-shaft gear)
Photo #1: Front Left Corner
Photo #2: Front Right Corner
If you suspect these are slipping, check the front ends of the shafts where these pulleys are seated. Look for signs of the metal getting worn out (discoloration and a change of texture), and replace any duplex rolls, if necessary. The wearing only tends to happen if the one-way pulley has already failed and is slipping on the shaft, so catch it early if possible. You can replace the entire duplex upper chute assembly (054K35936,
approximately $400) to keep things simple, or you might rebuild it with a duplex rebuild kit (DC700DXTRK, approximately $200). Once the upper chute is out of the machine, it’s straight-forward to rebuild (mostly a lot of e-clips). Below are some photos that show how the pieces should look when reassembled. Here’s a list of related parts, along with part numbers for the line items which are shown as spared on the OEM parts list:
Duplex Upper Chute Assembly Bearing Layout:
Photo #3: Rear End Bearings
Photo #4: Front End Bearings
Photo #5: Duplex Drive Shaft Routing We Saw It In ENX Magazine
DCP700 Duplex Drive Gear Kit
• Duplex in rollers (x2): (059K55960) • Duplex transport rollers (x3): (059K54440) • Duplex out roller (x1): (059K54430) • Duplex roll bearing kit: (DC700DXBK) [oilite bearings (x10) (413W75959), tiny bearings for out roll (x2) and small bearings for drive shaft (x2)] • Duplex drive pulley kit: (DC700DXPK) [one-way drive pulleys (x3) and D-shaft drive pulleys (x2) (499W14124)] • Duplex upper chute rebuild kit: (DC700DXRK) (includes the drive gear kit, pulley kit, bearing kit, out roller and replacement tires for in rollers and transport rollers, as well as the drive belt and the idler pulleys described below) When you replace or rebuild the duplex upper chute assembly, you’ll also want to replace the pieces on the transport drawer: • Duplex idler pulleys (smooth) (x8): (499W17061) • Duplex idler pulleys (24T) (x4): (499W14524) • Duplex drive belt: (023E27010) NOTE: there is also an idler pulley improvement kit, which has a set of smooth idler pulleys with a pair of ball bearings added to the centers of each. Item 655N00388 came with 7 idler pulleys, 14 flanged bearings and 14 white o-rings. There’s also item 655N00588, which only has 5 idler pulleys, 10 bearings and 10 o-rings. That just about covers both sides of it all. Happy repairs, everyone—see you next time! ♦
January 2020 | www.enxmag.com
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JANUARY 2020
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