Back From the Brink
At Xerox by Emphasizing
Color, Customers and Costs
April 24, 2006; Page B1
Five years ago, few investors were willing to bet that Xerox Corp. had a future. Overwhelmed by an accounting scandal, a Securities and Exchange Commission investigation, plummeting sales, high costs and a whopping load of debt, the one-time corporate winner had narrowly dodged bankruptcy court. The company had infuriated customers by botching a revision of its billing system. Investors were upset, and employees were fearful as waves of layoffs proceeded.
In May 2000, the company elevated to president Anne Mulcahy, an obscure human-relations head who joined Xerox in 1976 as a saleswoman. Today, Ms. Mulcahy is widely credited with managing one of the most adroit corporate turnarounds since Louis V. Gerstner Jr. rescued International Business Machines Corp.
Ms. Mulcahy took over as chief executive in August 2001. Since then, Xerox has restated $1.4 billion in earnings and settled with the SEC by paying a then-record fine. It has cut employment to 55,000 workers from a peak of 96,000. It cut $10 billion in debt, sold half of its stake in its Fuji Xerox joint venture and replaced both its auditor and its chief financial officer.
The company has increased profit for the past four years by cutting corporate overhead 26%, and research and development 29% since 2000. Xerox has regained its lead in the high end of the copier marketplace by developing a slew of new products, among them its $1 million iGen printers, which have taken an early lead in the new market for color digital presses for commercial printers.
Challenges remain. After tripling from its nadir to about $15 a share, Xerox stock price has been flat for the past two years and remains a small fraction of its 1999 highs. Although investors believe the company is on firm financial footing, expanding sales has proved an elusive goal. Ms. Mulcahy, now 53 years old, is predicting more earnings gains and a slight upturn in sales this year as she foresees new digital products overcoming the continuing decline in Xerox's traditional copiers. The key to her strategy is boosting sales of color printers and copiers: Xerox gets four to five times as much profit when a business prints a page in color than when it prints in black and white.
At a time when other old-time Blue Chip companies from General Motors Corp. to Eastman Kodak Co. face questions about their future, Ms. Mulcahy shared some thoughts on how to survive a near-death experience while preserving the capability to grow. Excerpts: