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Xerox Corporation

FOUNDED: 1906

Contact Information:

HEADQUARTERS: 800 Long Ridge Rd.
Stamford, CT 06904
PHONE: (203)968-3000
FAX: (203)968-3430
URL: http://www.xerox.com

OVERVIEW

Xerox Corporation, known best for its xerographic operations, has expanded its focus and developed new products. With more attention to the processing market (electronic management of documents), Xerox's Centre System has many functions: copying, faxing, printing, and scanning materials. New products such as color copiers and networking printing systems have allowed for steady growth.

Forming Dpix, a company that develops flat-panel displays using a new technology introduced by its Palo Alto Research Center, Xerox has also been able to expand its capabilities. The company's entry into document management began with its tepid entry into the financial field in the 1980s. Reorganizing its business foundations, Xerox sought to reduce its work force, sell noncore subsidiaries, and get out of debt from its restructuring efforts from 1994 to 1997.

COMPANY FINANCES

In 1997, Xerox reported $18.2 billion in total revenues. This was an increase from revenues of $17.4 billion in 1996 and $16.6 billion in 1995. Geographically, 49 percent of the company's 1997 revenue was generated in the United States, 30 percent in Europe, and 21 percent in the rest of the world, principally Brazil, the rest of Latin America, Canada, and China. The majority of 1997 revenues came from the company's sales of light-lens copiers ($9.6 billion). The remainder came from digital products ($6.7 billion) and from paper and other products (__BODY__.9 billion).

Net income also rose in 1997, to __BODY__.5 billion. In 1996, the company reported a net income of __BODY__.2 billion, and in 1995, it showed a net loss of $472 million. This represents a 20-percent increase in 1997 and a 12-percent increase in 1996. Basic earnings per common share rose to $4.31 in 1997. In 1996, earnings were $3.55 per share, and there was a __BODY__.59 loss per share in 1995. Revenue growth was driven, Xerox said, by 15-percent growth in equipment sales and 35-percent growth in document outsourcing.

Xerox's strong financial condition continued in the first quarter of 1998. In the quarter ending March 31, 1998, Xerox reported revenue of $4.3 billion, compared with $4.0 billion in the same period in 1997. Compared to 1997, however, net income dropped. Xerox reported income of $111 million, compared with $270 million in first-quarter 1997. Basic earnings per share also dropped, from $.79 to $.30 per share. Some of the loss was accounted for by reporting changes by Fuji Xerox, a subsidiary. A large portion of the changed financials occurred due to a company restructuring announced on April 7, 1998, which required employee buyouts, early retirements, and changes in capital.

Xerox has been increasing its research and development (R&D) spending. In 1997, R&D expenditures were almost __BODY__.1 billion, compared with __BODY__.0 billion in 1996 and $949 million in 1995. Xerox expected to increase its investment in technological development in 1998 in order to maintain its leadership position in the rapidly changing document processing market.

ANALYSTS' OPINIONS

Many analysts have seen Xerox Corporation's recent performance as reflective of a company on the rise. First-quarter earnings in 1998 were up 12 percent from the previous year. Company revenues increased as well. Combined with new products across the price spectrum and the restructuring that had begun, many analysts remained confident of Xerox's prospects. For the first time, Xerox entered the low end of the laser-printer market, long the almost exclusive domain of Hewlett-Packard. By making inroads into office supply stores like Staples, Office Depot, and Office Max, Xerox's products were beginning to be bought by consumers who had never considered the brand within their financial reach. As one analyst said to Investor's Business Daily, "Two years ago, most people would have characterized Xerox as being on the defensive, H-P as being on the offensive. . . . That's very debatable today."

Xerox further solidified its market position when it attained the number one spot in personal copier sales in the United States in 1997, according to a Dataquest report. Xerox followed that announcement with its introduction of the XC865 copier, the industry's lowest priced personal copier equipped with a 20-page document feeder. According to Dataquest, Xerox had a 48-percent market share in sales of personal copiers (models that turn out up to 16 copies per minute) in 1997. That marked the first time that Xerox outsold all other personal copier sellers.

HISTORY

Selling photographic paper, the Haloid Company purchased Rectigraph in 1935, a photocopying company. This acquisition caused the company to seek licensing for electrophotography (renamed xerography at a later date). Haloid produced the Model A copier in 1949 and the Xerox Copyflo in 1955. Because xerographic products accounted for 40 percent of Haloid's sales, it changed its name to Haloid Xerox in 1958.

With the introduction of the Xerox 914, the first office copier made easy, the company was launched to the competitive edge after winning public recognition and acceptance over other copying technologies such as mimeograph, thermal paper (3M), and damp copy (Kodak). Haloid Xerox's earnings increased sharply from $37 million in 1960 to $268 million in 1965. In 1961, the company dropped Haloid from its name and became simply Xerox.

Looking to expand, the company made many purchases in the 1960s including three publishing companies and one computer business, which were all eventually sold or abandoned. In the 1970s Xerox went on to acquire other companies that manufactured printers, plotters, and disk drives. The company also purchased Western Union International in 1979, which it sold in 1982.

With so many purchases under its belt, Xerox licensed its xerographic technology to other manufacturers. Xerox bought more companies in the 1980s, including Kurzweil, Datacopy, and Ventura. These purchases expanded the company's business to include optical character recognition, scanning and faxing, and desktop publishing. Xerox also entered the financial services business with the purchases of Crum and Forster (insurance) in 1983 and Van Kampen Merritt (investment banking) in 1984. Xerox later sold its desktop publishing and investment banking companies. By 1998, it had also sold its insurance business and had left the financial services arena altogether.

When Paul Allaire became CEO in 1990, Xerox shifted its focus to document processing. Presented with possible alliances in the future, the company also agreed to provide print engines to computer companies Compaq and Apple in the early 1990s. Because Xerox's main competitor, Canon, had previously supplied Apple's print engines, this business deal was particularly significant.

The 1990s also were characterized by changes for Xerox's research and development operations. Known for its remarkable innovations like the laser printer, PC networking, and the graphical computer screen, Xerox sought ways to cut costs and speed up production in this department. One way Xerox decided to hasten a product's introduction to the market was to form alliances with Lotus, Microsoft, and Novell. By 1995, new products like color laser printers and various software products, including DocuWeb and InterDoc, were introduced. Using these products, a user could print documents from the Internet and the World Wide Web.

The company's decision to focus on document processing also led to the sale of many of its noncore businesses. On March 11, 1998, Xerox announced an agreement to sell Crum and Forster and to leave the insurance field. Other developments included a partnership with LG Electronics to make multimedia-related office equipment. The 1998 moves followed the 1997 sales of the company's Coregis Group (insurance) and Apprise (a computer services company).

STRATEGY

As of 1997, Xerox announced an assertive growth strategy to increase revenue and earnings in digital copying, production publishing, and document services. The company's goal was to see double-digit earnings growth in 1997 and in years to come. Other elements of this strategy have included Xerox's expansion plans for its small and networked offices, hoping to increase retail and indirect channel sales to $4 billion (up from __BODY__ billion) by the year 2000.

Other expansion plans have included increased attention to new product development, adding printing and graphic arts features to its publishing business, and outsourcing its document services to include network services, consulting, software, and Internet services.

Xerox continued its strategy of acquiring other companies. In June 1997, Xerox acquired the remaining 20 percent of Xerox Limited from its subsidiary, the Rank Group, for approximately __BODY__.5 billion. As a result, Xerox owned 100 percent of Xerox Limited, a company through which Xerox distributed its products in Europe, Africa, the Middle East, and parts of Asia, including Hong Kong, India, and China

In March 1998, Xerox announced an agreement to acquire XLConnect Solutions, Inc., an information technology services company, and its parent company, Intelligent Electronics, Inc., for $415 million in cash. XL-Connect has 1,500 employees, 27 locations throughout the United States, and 1997 revenue of $135 million. It provides network management, consulting, design, and integration services for medium and large companies.

Xerox announced a restructuring in April 1998. It included consolidation of 56 European customer support centers into one facility; streamlining manufacturing, logistics, distribution, and service operations; and overhauling administrative processes, including closing 1 of 4 geographically organized U.S. customer administrative centers. Severance costs were expected to result from the elimination of approximately 9,000 jobs worldwide through layoffs and voluntary reductions.

INFLUENCES

In the past, Xerox let its technology direct its strategic path. In the late 1990s, the company's new strategy reflected a shift, allowing the market to lead the way. Its early years were characterized by comfortable growth, which led the company to become complacent. As competition increased, the company was forced to look for a new direction.

Xerox Corporation implemented a new strategy called Leadership Through Quality, characterized by improving quality while reducing costs. Looking to Fuji Xerox in Japan as an example, Xerox focused on getting more opinions from customers, shifted its direction in product development, and reduced costs.

Xerox also took on the company signature The Document Company, Xerox, in 1994 as an indication of the company's new direction: document management. In other words, Xerox aimed to target anyone who used documents from small companies to Fortune 500 companies. Xerox's goal was to integrate its printers, scanners, fax machines, and copiers, as well as personal computer and workstation software. In addition, Xerox sold such supplies as paper, ink, and toner and provided document outsourcing for large customers.

The company's new focus demanded retraining, which frustrated company salesmen who were unfamiliar with the technological network systems involving the company's copiers. Many salesmen became angry, and some even quit. Xerox was left without salesman in many regions. CEO Paul Allaire admitted in The New York Times, "We tried to move too fast from selling boxes to selling document solutions."

Xerox witnessed a decline in its stock price in late 1995 as problems with its sales people became known. Even in 1996, the corporation's stock fell as investors became aware of the cost involved in the company's recruiting and training efforts. From that point, Xerox went on to resolve its manufacturing and sales difficulties to become a competitive driving force in the industry, according to many analysts.

The company's quick adventure into a field for which it was unprepared caused it to adopt its current strategy. Instead of allowing technology to be the key for the company's direction, Xerox began to let the market dictate its direction. This new strategy helped the company to record a 1997 increase in profits and win the approval of analysts.

Another influence on Xerox, as it is on every large company, has been litigation. A patent infringement lawsuit filed in 1996 by Accuscan resulted in a verdict against Xerox for $40 million. Xerox has appealed the April 1, 1998, verdict, which had to do with facsimile products. A second lawsuit was filed in May 1998 by Xerox against Hewlett-Packard (H-P) in regard to printers. Xerox wanted to have H-P ordered to stop selling ink-jet printers and cartridges with what Xerox claimed was Xerox-patented technology. Hewlett is a far larger force in the printer market, holding about a 51-percent share in 1997, compared to Xerox's 2 percent. Xerox's suit followed by about seven months an H-P trademark infringement suit against Xerox, which claimed that Xerox was making misleading endorsements on printer cartridges.

CURRENT TRENDS

Among more recent trends at Xerox Corporation have been cost-cutting efforts and a new array of digital products. These trends have been, at least in part, a result of the company's expansion efforts to compete with companies like Hewlett-Packard. For example, with a new line of digital copiers, Xerox should be able to cut into some of its competitors' network printer business. In fact, the company launched a national advertising campaign in early 1997 promoting its latest printer, the DocuPrint C55 Color Laser Printer. Other promotional efforts have included a 21-percent price reduction for Xerox's complete line of desktop laser printers.

PRODUCTS

In line with Xerox's newfound strategy has been its increasing introduction of new products. The Pagis Pro 97, for example, allows users to easily scan, copy, fax, find, print and grab, and move scanned documents to widely used desktop applications. Using a technology developed by Xerox, PerfectScan, users are able to scan color documents, save document formatting and pass them on through fax, e-mail, and the World Wide Web. Using MatchBars, Xerox has also been able to provide users with a means of organizing and finding scanned and electronic information.

During 1997, the company introduced the Docu-Color 70, a continuous feed full-color digital press, which produces 70 full-color impressions per minute. Also introduced was the DocuColor 5750 Empress copier/printer, which produces six full-color copies per minute, and the DocuColor 5799, which produces nine full-color copies per minute. For networked workgroups, Xerox introduced the DocuPrint C55, a compact color laser printer that prints three full-color pages per minute. It includes automatic image enhancement and an embedded Web server; Xerox claimed that it was the lowest-cost product of its kind at the time.

At Xerox, digital products, like color copiers, were the fastest-growing segment of the industry. However, in 1997, about 60 percent of Xerox's revenues still came from low-technology analog devices. Digital products contributed 36 percent of total revenues in 1997, 30 percent in 1996, and 25 percent in 1995.

CORPORATE CITIZENSHIP

Through the Xerox Foundation, the company has launched many community-minded programs, such as those dealing with education, science and technology, cultural affairs, national affairs, and community affairs. In 1996, the Xerox Foundation donated a total of $15 million to such programs.

Xerox has also implemented the Social Service Leave and the Xerox Community Involvement programs. Under the Social Service Leave program, employees have been able to obtain paid leaves of absence to help with community projects they have chosen. The Xerox Community Involvement Program has allowed groups of employees to receive funds to help with problems they see in their communities. Over 21,000 Xerox employees were active in more than 750 projects in the mid-1990s.

GLOBAL PRESENCE

International operations account for 51 percent of revenues at Xerox. Its largest interest outside the United States is Xerox Limited, which it purchased outright in the late 1990s. Marketing and manufacturing operations are also conducted through joint ventures in India and China. Marketing and manufacturing in Latin America are conducted through subsidiaries or distributors in more than 35 countries. Fuji Xerox develops, manufactures, and distributes document processing products in Japan and other areas of the Pacific Rim, Australia, and New Zealand.

Xerox's focus has been on developing markets like Russia, the Middle East, Africa, China, and India. With 30 percent of its sales coming from Europe, the company has remained heavily dependent upon markets outside of the United States. Forty-nine percent of the company's sales have been accounted for by the United States, while 21 percent comes from the remainder of the world.

One new market for Xerox Corporation has been South Africa. Teaming up with South Africa's Fintech Ltd., Xerox has established its business there. Xerox South Africa, operated by Fintech, has acquired the business previously conducted by Fintech under the name of Xeratech. Announced in early 1997, this partnership, the company believes, has great strategic advantages in a growing market.

Xerox has offices, manufacturing plants, and other operations around the globe. With the document processing market growing worldwide by 10 percent each year, the company has plans to expand its services when feasible to emerging markets. With existing operations in the United States, Canada, South Africa, the Middle East, and throughout Europe, Xerox has used its technological innovations to expand its operations and keep its competitive edge against other global players in the document processing field.

EMPLOYMENT

Xerox's worldwide employment increased by 4,700 in 1997 to 91,400. Xerox cited the need to hire 2,500 employees to support its fast-growing document outsourcing business. In addition, 1,300 employees were added following two acquisitions, and 1,000 were hired for increased sales coverage. These new hires were partially offset by reductions in other areas. The company is expected to cut 9,000 jobs in the late 1990s as part of its restructuring.

SOURCES OF INFORMATION

Bibliography

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For an annual report:

on the Internet at: http://www.xerox.com/annualreport/1997/ or write: The First National Bank of Boston, PO Box 8038, Boston, MA 02266-8038

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Xerox's primary SICs are:

3577 Computer Printer, Manufacturers

3579 Duplicating Machines, Manufacturers

3661 Facsimile Equipment, Manufacturers

5044 Duplicating Machines, Wholesale

5045 Computer Printer, Wholesale