Xerox Seeks To Reassure Investors - And Channel Partners - Amid Restructuring

And both Anne Mulcahy, Xerox chairman and CEO and Russell Peacock, president, North American Channels Group, insisted in comments to Everything Channel that reseller relationships, which the printing vendor started to make an aggressive priority about four years ago, would remain vital to Xerox's ongoing strategy.

Xerox's 3Q earnings call on Oct. 23 emphasized Xerox's steady growth in SMBs and its annuity-based businesses, but confirmed gross profit margins were hitting a roadblock -- especially with the news of a three percent drop-off in high-end equipment orders from large enterprises when compared with a year ago.

Mulcahy said Xerox expects a $400 million restructuring charge for the fourth quarter, but ultimately Xerox will realize cost savings of $200 million in 2009 thanks to that restructuring.

"It was not done to increase profitability, but to cover costs," said Xerox president Ursula Burns.

Mulcahy suggested the workforce reduction would be focused about half in North America and half in Europe, but was not a "blunt instrument" and would be addressing areas -- such as in human resources and marketing -- where there were shared competencies.

"These are extraordinary times," Mulcahy said to analysts earlier. "But we will stay the course, and be conservative with our cash flow. Companies want to do business with companies that are a safe bet."

Her word for progress for Xerox VARs? Robust.

"We do look at it, and there's kind of a logic in place about who does what," said Mulcahy when asked about how to maintain harmony among Xerox's various distribution channels. "It's not 100 percent rationalized, but we continue to make sure wherever Xerox products are accessed, it's the channel that's right for them [the customer]. We've seen some pressure [on VARs] trying to keep inventories strong and managing cash -- they're worried about their customers the same as everyone else. But overall, we've seen a good robustness in terms of equipment sales."

One major channel conflict concern for VARs was Xerox's April 2007 acquisition of Global Imaging Systems, whose assets and services provided Xerox overall with a greater SMB foothold. While VARs had expressed anxiety at the time, both Mulcahy and Peacock said those fears have been assuaged.

"We have been surprised and delighted that it has not been the case to the degree we thought it might be at the beginning," Peacock said when asked about overlap between Xerox's reseller channel and the Global Imaging Systems side. "We've tried to [reassure] that in this situation, one plus one plus one needs to equal four. This is all about getting Xerox in front of more buying decisions and making sure the customer can get in front of Xerox."

Mulcahy, Peacock and other Xerox executives addressed other aspects of the company's 2009 strategy throughout the conference, as well as its maintaining the No. 1 spot with regard to market revenue share. Mulcahy addressed the following:

On Xerox mentioning in its investors report that it would bring resources devoted to R&D down as much as a full percent point (from 5 percent in 2008 to 4 percent in 2007), and whether as one reporter asked, that meant the company was "giving up on innovation:" "Absolutely not," she said. "That includes almost nothing upstream in research. If anything, it's the next stage of productivity. We believe we're not sacrificing anything but capturing efficiencies due to the maturity of the business."

On Xerox's green strategy: "[Customers] care. We are literally being asked to present the impact on carbon footprints," Mulcahy said. "There's an environmental impact and also happens to have a great impact in terms of reduction of waste."

On Xerox's comfort in paying its dividend: "Absolutely," she said. "We have a modest dividend [10 percent] that we look forward to increasing."

On cancellations: "We're seeing nothing materially different. We do think there's a higher hurdle rate for decisions -- more due diligence, the explicitness of ROI. But we've been seeing that for a while, that's nothing new," she said.

On the continued push into SMB markets: "Five years ago, we would have done very little on the SMB product portfolio," Mulcahy said. "Last year, 18 products were focused on SMB. The fact that we had so little business in SMB for such a long time, well, it's great to go after incremental revenues instead of substitutional revenues. 2008 has been the single biggest year for us in terms of SMB product introductions."

On A4 printing and A3 printing: "A4 is big, but A3 is still big. A4 is growing 30-40 percent but A3 is also still growing," she said. "You need a robust portfolio for each."

On Ricoh's acquisition of Ikon and how it reshapes the marketplace where Xerox, HP, Konica Minolta and Canon all play: "Times have changed, and there's no question there's more opportunity to be won," said Mulcahy.

"In terms of IKON, they continue to be our No. 1 competitor in every market we're in," Peacock added with regard to that last point. "In terms of their transition to be 100 percent Ricoh vs. Canon- and Ricoh-based, that's going to be challenging for them.

"Typically the customer who has a Canon product becomes very loyal to that product because of functionality vs. Ricoh," he continued. For them to retain that customer is going to be a challenge. It'll be disruptive. In terms of ourselves, we compete with them every day. But we bring a better solution to the table than they do. Let's stay focused and not get preoccupied with other things, because when you do that you get distracted from what makes you great."