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Xerox Partners: Icahn's Complaints Are 'Short-Sighted' And CEO Jacobson Is Leading The Channel In The Right Direction
Carl Icahn's public criticisms of Xerox and CEO Jeff Jacobson caught channel partners by surprise this week, when the billionaire activist investor launched his campaign to install a new chief executive and four board director nominees at the Norwalk, Conn.-based printing giant.
In a letter sent to investors on Tuesday, Icahn – who owns more than 9 percent of the company – argued that Xerox has introduced underwhelming products and relied too heavily on sales, marketing and R&D cost-cutting in Jacobson's 12 months at the helm. He added that Jacobson, chairman Bob Keegan and other "old guard" members of the Xerox board have failed to recognize that further change is needed.
"We are hopeful that a change in senior leadership will lead to… value creation at Xerox," Icahn wrote. "The long-tenured members of the board seem to have their heads in the sand just like at Eastman Kodak. There is still time for change – but very little time."
Xerox partners who spoke with CRN, however, painted a different picture. They praised many of the strategic changes made in the past year, including improvements in the managed print services program and the app development made possible through a broader lineup of ConnectKey devices, and expressed support for Jacobson.
"Jeff is very passionate about the business," said Troy Tafoya, president of Fort Collins, Colo.-based Professional Document Solutions. "If you get somebody who isn't as passionate about the business, it can go in the wrong direction. That's a concern we'd all have. I think he has made Xerox great again in terms of focusing on the core business, more focus on employee and partner satisfaction, and most importantly customer satisfaction. At the end of the day, they decide if we have a job or not."
Tafoya said he has been excited to transition away from the traditional agent-only partnership model, despite the associated challenges, and believes apps could become a true difference-maker for the Xerox channel down the road. He also believes that Icahn's call for a leadership change is hasty, given that many of these examples are recently-launched developments.
"That is a shocker," Tafoya said. "Maybe they expected a quicker turnaround in terms of profit and where the company is heading. I think that's unrealistic in that short amount of time."
Just-Tech President Josh Justice echoed similar sentiments.
The La Plata, Md.-based solution provider, named Xerox App Developer of the Year in March, maintains a flourishing apps business that accounted for 10 percent of company revenue as of this past spring. Justice said the growth in custom Xerox app development has allowed his company to streamline workflows and, in turn, create new value for customers.
"Just-Tech has had an incredible year being a Xerox partner and taking advantage of Xerox’s partner programs, and bringing these new products, apps and solutions to our customers," he said. "We are anticipating a huge 2018."
In years past, some partners saw Xerox setting itself up for trouble by commoditizing equipment sales and prioritizing market share over profit. By 2015, when Icahn bought more than a 7 percent stake in the company, it had just taken a third-quarter loss of $34 million amid declining revenue.
Many of Icahn's latest complaints target decision-makers who were at Xerox before he took interest in the company and pushed it to split in mid-2016, when services powerhouse Conduent was spun off as a separate entity. Jacobson, who became CEO in January, has been a top executive at Xerox since 2012. Keegan, a longtime board member, spent 25 years at Eastman Kodak, which filed for bankruptcy in 2012.
Icahn went on to claim that 75 percent of the value created at Xerox since last year stemmed from the Conduent spin-off, meaning its stock has "dramatically underperformed the S&P 500" during that time. He also noted that companies such as eBay and Forest Laboratories benefited from CEO changes he prompted.
In an interview with TheStreet, Icahn mused that Xerox could make for an appealing acquisition target down the line.
"This company would be a much better candidate for an acquisition once they clean certain things up," Icahn said.
But the past year has marked a positive departure from the "old guard" Xerox mindset, said Patrick Leone, founder and CEO of Bloomington, Ind.-based MidAmerica Technology. He believes the market needs more than 12 months to catch up with Xerox's new ConnectKey devices, which were launched in the first half of 2017, because customers need to see how those can create efficiencies in practice.
"It's up to partners to be developing apps to take advantage of that technology they created," he said. "It's short-sighted to say, 'Where are the profits now from it?' It's hard if (Icahn) wants to be forward-thinking and not playing catch-up. It would be inconsistent to say, 'I don't think we're seeing ROI on the platform that was launched' because that was based on the future.
As Icahn's board battle rages, Leone also hopes that Xerox continues to view partner relationships as a key source of future value. Leveraging the channel to sell solution-based products in a large footprint, he argued, is the best way for Xerox to drive profits.
"If (Icahn) is looking to drive profit for shareholders, I can't see any way to do that better," Leone said. "The alternatives are not going to drive profits. The way they got shareholder values down was doing the same thing for years. Pushing into the solution side and the partner side is the way to go."
In a letter to employees that was published in its SEC filings this week, Xerox waved off Icahn's antics as a distraction. "The most important thing for you to know is that it is business as usual at Xerox," the company wrote to its employees. "This news has no impact on our operations, our team, our strategy or our priorities. Thanks to all of your hard work, we are on track as a company and we reaffirmed our financial guidance for this year."