Xerox wants to be comeback kid of technology sector

F. Scott Fitzgerald once wrote, "there are no second acts in American lives". This statement was recalled only to be contradicted by Anne Mulcahy, president of Xerox, in New York this week, when the company launched a new Xerox colour printer intended to get the crisis-ridden company back in the black.

"Today there are second acts, third acts and more in the lives of many companies who've led their industries," she said. "Now once again it is Xerox's turn.

The phrase has particular resonance for Xerox CEO Paul Allaire, who is credited with rescuing the world-famous copying company from collapse in the early 1990s through cost-cutting and new technologies, and was brought back from retirement last May to work the same trick again.

"I expect it to be a second act," he said in an interview after the launch of the new office colour printer, the Phaser 2135, which Xerox claims is three times faster than the competition's machines. "I expect it to turn the company around, though I think the turn around will be completed by someone other than myself."

Xerox in other words has a long way to go before recovery. Since the company came to Ireland three years ago, it has been struggling to survive against intense Japanese competition, crippling debt service expenses and internal woes.

Last year overall revenue declined 4.7 per cent to $18.63 billion and the company reported a loss of $198 million, the largest in a decade, for the last quarter. It is still losing money and is laying off 6,000 employees. By the end of 2000, total debt was $17 billion, with cash in hand at $1.7 billion.

The company has been getting a bad press in the US. On March 5th, Businessweek Magazine featured "the inside story of the management fiasco at Xerox", and accused the company of a botched leadership succession when CEO Richard Thoman was abruptly sacked and replaced by Paul Allaire. In recent months there have been reports that Xerox may not be able to avoid Chapter 11, i.e. bankruptcy.

"Chapter 11 is something which has been rumoured in the press but it is not something we have ever considered," said Mr Allaire. "We have a turn-around plan which includes asset sales. We have just concluded the sale of 25 per cent of Fuji Xerox, which has given us $1.3-$1.4 billion cash. We started the year with $1.7 billion cash so liquidity and bankruptcy is not an issue."

He blamed the rumours on "a lack of understanding of the debt on our balance sheet, which is predominantly orientated to financing our customers' purchase of our equipment." In future, he said, "we do not intend to provide financing ourselves." Xerox was now "negotiating with other companies to provide that financing in the future, and as we do that the debt on our balance sheet will roll off very quickly and so we do not see liquidity as an issue".

Most of the problems in Xerox were "of our own making", Mr Allaire acknowledged, but "fixes" had been put in place and "right now our expectation is that our business in the US will turn around despite the adverse economic environment. We will continue to see a slow economic environment in the second quarter, probably in the third quarter and then starting to pick up a little bit in the fourth quarter", and a return to profitability in the second half of the year.

In what will be good news for the 1,600 employees at the Xerox plant in Dundalk and the 1,000 in the Dublin call and services centre, the Xerox CEO said that the planned lay offs would not affect Ireland. "I do not believe we have any downsizing in Ireland," he said.

In fact "the kind of things we announced today in terms of the focus on colour send a positive message for our operation in Dundalk." There would be "more in the future of the products we are actually building in Dundalk than we previously announced".

Xerox plans to spend more than $715 million in colour research and development this year, which amounts to 40 per cent of its $1.7 billion R&D budget.

Mr Allaire made clear however that Xerox was not happy with the way the Xerox customer call centre had worked out in Dublin, because of the unexpectedly high turnover of employees. The only downside in the Irish investment, he said, was the problem of retaining qualified people.

"We need people who are not only English-speaking but also, because we handle a lot of Europe from there, some of the other languages, German and French, and there's a high interest in other companies in taking these people. They may work for us for a year or a year-and-a-half, then they're gone, or they just want to come over and spend a year or two in Ireland."

If they had anticipated this, "I think we may have located in a different location," he said. Such problems did not affect Dundalk however. "It's a trade-off, because getting somebody who's French-speaking to go out too far from Dublin is probably not possible."

Asked about the worldwide future of the company, which began its life in 1938 when the first xerographic image was produced by Chester Carlton in New York, and has since become synonymous with paper copying, Mr Allaire put a brave face on it.

"I think we have a very positive future because our technology is so strong," he said. Colour had provided a big growth opportunity. "Xerox is uniquely positioned: we have a worldwide sales and services organisation and we have a superb technology. We can do this on a worldwide basis - nobody else can."