Total revenues were 2bn ($3.6bn), a 2% drop on the same period in 2005. Sales had also fallen by 2% to just over 800m, but there was good news on colour equipment sales, which had risen 11% to 670m.

Xerox chairman and chief executive Anne Mulcahy said that the improved figures in colour, plus a 25% increase in signings for document management services, showed that "Xerox's business model was working".

"While encouraged by annuity growth, I am disappointed in our gross profit decline," she said. "This was largely due to increased costs and had a direct impact on our first-quarter earnings."

Mulcahy added that she was confident that Xerox would be "back on track" in the next quarter. "We've identified the issues and are taking the right actions, right now to readjust our cost base inline with our business model."