Xerox faces painful surgery if it hopes to regain health

So ubiquitous is the word Xerox in the English language that the American Heritage Dictionary lists a definition for it among its 70,000 other entries. The name is synonymous with copying. Sadly, it may soon become a synonym for corporate failure.

No one wishes this on a company that traces its roots to 1906 and a Rochester, New York, photography company that manufactured a paper called haloid.

There were tough times even then. An inventor named Chester Carlson couldn't get anyone interested in the machine he called a xerographic image machine. Who needed a copier when you could use carbon paper?

It wasn't until 1947, after three years of refining the technology, that the company called Haloid actually built such a machine. By 1961, Haloid had changed its name to Xerox and the company began trading on the New York Stock Exchange. The company became a stalwart of the Dow Jones Industrial Average, a fierce blue-chip that, in the 1970s, fought off threats from Japanese competitors.

It even began the Palo Alto Research Center (PARC) in California, a think-tank that was on the cutting edge of technological innovation. Some now say that even a generation ago Xerox began missing the valuable commercial applications of the research coming out of PARC.

Among the centre's claims to fame were the development of the computer mouse, the Ethernet, which links computers at remote sites, and the little onscreen icons that make computers friendly to consumers. Silicon Valley legend has it that it was during a visit to PARC that Apple Computer Steve Jobs realised the potential value of those applications.

Drag and drop, icon-driven software became an early feature of Apple as well as a mainstay of all consumer-oriented computers.

Failure to recognise a shift in the business climate is nothing new to big companies. Intel, for example, was forced in the 1980s to get out of the memory business and focus instead on computer chips. IBM famously changed courses in 1993 when a new chief executive arrived and decided against a break-up of the company. Both those companies responded aggressively to their initial failures to shift with the times, and both survived. Xerox is not responding quickly enough, warn analysts.

Observers now say that, among its other missteps, Xerox failed to recognise the importance of the Internet. It did not anticipate that the line between copiers and printers, for example, would blur.

Lower priced printers and copiers for the home and small business are now the fastest growing segment of the market and it is dominated by HewlettPackard. Even the high end of the market was compromised. Xerox's most serious competitors today - Heidelberger Druckmaschinen of Germany, Canon of Japan, and even US-based IBM - all have open architecture machines that can more easily accept electronic files from various software programs.

That feature has allowed those companies to challenge Xerox in its most profitable product line, the Docutech networkable computers that are the super-high speed copiers for which Xerox was known. The line featured machines that copy 180 pages per minute and can cost from $250,000 (#298,000) and more. Heidelberger introduced a machine last summer that copies 110 pages per minute but costs far less.

Yet even with its miscalculations, Xerox stock was trading as high as $61 a share early last year. Then the problems came home to roost. The stock price is wavering now, up slightly, but earlier this month it hit $6.75 a share, a 10-year low.

As rumours of bankruptcy swirled - and were fiercely denied by the company - Xerox did confirm that its efforts to borrow money were being curtailed. Still, it maintains it has enough funds under a $7 billion revolving credit agreement to stay afloat.

After announcing a third-quarter revenue loss of $167 million on Tuesday, Xerox said it would restructure and start a turnaround programme. The plan? In a nutshell, simply to cut jobs and sell assets.

The job cuts, which may involve Xerox's operations in Dundalk, will only be the latest. Xerox slashed 2,500 jobs worldwide in 1992, a further 10,000 in 1993, 9,000 in 1998 and 5,200 last April. At that time Xerox announced 2,200 new jobs in Ireland, 1,500 in the Dundalk plant.

To the consternation of Wall Street analysts, Xerox did not lay out specific plans for the new round of cuts, other than to say they would be "quite large". Xerox president Ms Anne Mulcahy said the job losses would be "spread to all parts of Xerox across the world".

An independent analyst with Goldman Sachs estimated the cuts would amount to 5,000 jobs, or 5 per cent of the company's workforce. Others said the cuts might amount to 8,000 jobs, most of which would be lost in manufacturing and service operations.

In an effort to unload $4 billion worth of assets, the company said it was in talks to sell its 1,000-employee China operations and its 50 per cent ownership in Fuji Xerox, Xerox Engineering Systems and its interest in several spin-off companies. Taken all together, the company is aiming at cutting $1 billion in costs next year.

It will not, as some analysts had predicted, get out of the hardware business and become a "solutions" company, focusing on document systems.

"I would look at our technology from a hardware perspective and say it continues to be world class," Ms Mulcahy told Reuters news agency. "I know this organisation very well."

A long-time Xerox employee, Ms Mulcahy (48) became one of the highest ranking women in corporate America when she became president of Xerox in May.

Saving Xerox and protecting its core businesses will be a challenge for Ms Mulcahy and her team, and some Wall Street analysts complained that, even now, the company was not moving aggressively enough. They contend that cost savings should be immediate and not aimed at next year.

Others, however, say that for Xerox to survive it must take the long view. Dramatic corporate turnarounds are not unheard of in US companies (Think Kodak, IBM, Chrysler). But the surgery will be painful for both employees and investors.