Xerox CEO Upbeat About New Year


Color, services pace company


With earnings season behind them, many big-name industry CEOs are turning their eyes toward Wall Street this month and next. Next month, for example, Cisco hosts its annual analysts meeting. There, scores of stock-pickers and sellers big and small hope to decipher some of the cautious words Cisco CEO John Chambers used recently to describe how he thinks the remainder of 2005 will unfurl.

One CEO and chairman expressing healthy optimism is Xerox's Anne Mulcahy. This week at a gathering of analysts who follow her company, Mulcahy said she expects earnings to rise 10 percent to 15 percent next year on modestly improved revenue, which is expected to grow at roughly 3 percent. (The company expressed as much in a
prepared statement.)

Declining ASPs are to blame for the modest revenue expectations, but it&'s Mulcahy who gets credit for the improving earnings picture at Xerox, which was seen as a struggling, lumbering giant choking on its own bureaucracy and drowning with its own business plan just a few years ago. Under her guidance, however, the company has returned to relative prosperity. In the third quarter, for example, total sales at the company rose 1 percent. But in the category of color products and services, sales jumped a whopping 22 percent -- an excellent sign for the company, which has pinned its future on color adoption, digital products and services.

Recently, VARBusiness sat in on an interview with Mulcahy, where she spoke about her company&'s interests in color, small business and Google, too.

VARBusiness: Lots of push on the SMB segment of late.

Mulcahy: This is everybody&'s business at Xerox. If you are in manufacturing, you are thinking about it. If you&'re in research and development, you are thinking about it, because there is just no place left to go...We have to get better penetration from SMB. It&'s got to come from color and services, and, therefore, we need to bring a world-class color portfolio of products and services that the SMB wants. It&'s absolutely a strategic focus for the company.

VB: Can you slice the R&D effort that focuses on SMB?

Mulcahy: Look at it this way -- half of our R&D right now is focused at the office marketplace, which is a $60 billion opportunity. Traditionally, you think about Xerox as big-iron production publishing, right? Half of our R&D is focused on the Office, less so on the engines, and more on the controllers and differentiating intelligence, workflow and services and the things that surround the engine that really can provide more value to the smaller midsize company.

VB: Look at what you are doing today: What are you going to be doing three years from now, or five years from now that you are currently not into?

Mulcahy: Well, I think the transition to services led through the channel is going to be huge for us. That&'s got to be a definitional aspect to how we define and grow our business and how the channels grow their business. So I would say that's ‘a&' defining transition that needs to take place. Color: We are more serious about color today. When you look at the amount of money we are spending on color research, color science, color management and color product development, it&'s enormous. And yet in the marketplace, 3 percent of the pages are being done in color. That&'s it. Seven percent of our pages, so we are doubling the market.

VB: Why not more for the rest of the market?

Mulcahy: It&'s a combination of things: cost, ease of use, quality...but that&'s it. So, where do we have to go? We have got to fix those issues. We have got to bring cost down and make sure speed and quality is that which has been achieved in the black-and-white marketplace and reach that turning point where people stop thinking about whether they make it in black-and-white or color.

VB: You have said channel-ready products go to the channel. Services, too. All good there?

Mulcahy: Our partners are great. Absolutely. But work remains. We need the channel to get comfortable with new technology, too. I will tell you I was so excited when we launched our 2424 into the channel. I think this is one of the most world-class, priced-right products. It is fabulous. And you know, multifunction, solid-ink -- just an extraordinarily price-point product. And yet it&'s not moving in the channel as quickly as I would like to see. I mean it&'s doing well, but this ought to be a barn-burner.

VB: Is it an issue of training? Incentives? What?

Mulcahy: I think there&'s responsibility on both sides. I think we underestimated the market development that was required for a new category of product. So you&'ll see us do more than just the market-demand side. It&'s totally new and, therefore, we are going to have to do more to create pull for the product. But I think the distributors and resellers can do more. It&'s so easy to sell what you did in the past versus describe new value.

VB: Is it a matter of pull? Or push?

Mulcahy: Our job is more. We have to create awareness. If you&'re gonna be successful in more categories, you need more push. We&'re talking about both. We have to do our part and spend some money in the market place. If partners want new revenue, they have to demonstrate a willingness to invest to help create a new category as well. In some sense, we are gonna relaunch.

VB: Can you spend a second on the competitive landscape? Spend a second on HP, companies from Japan, Canon, in particular, comes to mind. How are you doing against it? Where do you need to shore up?

Mulcahy: We spent a lot of time shoring up against our traditional competitors. I think we are seeing the results of that. I won&'t suggest it&'s an easy marketplace; it&'s a war zone. But I think that our portfolio of offerings stand up very nicely against our traditional competitors, whether Canon, Ricoh, Kyocera or Minolta. There has been a lot of work done to make sure that we have got leadership technology at the right price points. We participate from the very low end to the very high end. While we may not have a home run in every segment all the time, we are winning where it counts. That&'s in color pages and services. I look at HP, and I think there&'s a lot of question marks in terms of what direction they&'ll take. We certainly view them as a very serious contender in the printing business. My hope is that the value we are talking about from multifunction, services and relationship will put us in a position to be a welcomed player in the channel that has an opportunity to grow faster, quicker and create a win-win proposition with the channel.

VB: Do you have a personal Google? By that, I mean is that one company you are keeping your eyes on -- the one that percolates in your minds and causes you to think about things differently? Google is certainly the company that Microsoft thinks about. Do you have a Google?

Mulcahy: I think we would have to say Dell. In many ways, we watch Google, too, as they think about the world of digitized information. We are the bridge to that information for many. The reason I look at Dell is because knowing who we are and what we do best and focus on keeps us honest about the value proposition we bring to the marketplace. We can&'t get confused there because you will lose. Dell helps us focus on what we do best and where our value is to clients. And that&'s never gonna be pure, low-end transaction business. So, we keep our eyes on them cause just like they have aspirations to stretch their business, we have to raise the bar and make sure the differentiation is there in terms of the value proposition we bring to our customers. I believe our whole partnering strategy is a big piece of how we are going to deliver value to our customers, and that will be a real advantage that the Xeroxes of the world will have over the Dells of the world. We also look at HP as well...I would never underestimate their power and their aspirations.