Xerox exits SOHO business
Ailing copier maker says move could save $100M but entail a $200M charge
June 14, 2001: 11:51 a.m. ET
NEW YORK (CNNfn) - Struggling copier maker Xerox Corp. said Thursday it is exiting the small office/home office business in a move the company anticipates will save more than $100 million, but could result in charges of up to $200 million.
Xerox (XRX: down $0.13 to $8.28, Research, Estimates) President Ann Mulcahy told analysts during a conference call Thursday the move could add about $100 million in cash above previous expectations to the company's second-half results.
Mulcahy also reiterated the company expects to post a second-quarter operating loss in line with its first-quarter results. In the first quarter, Xerox reported an operating loss of $86 million, or 12 cents a share, before special items.
The company said it could not be more definite now about the $200 million charge, but will release a more precise figure later.
Additionally, the move will require cutting the number of employees at its small office/home office unit from about 1,500 to between 200 and 300, Xerox said.
"It would be likely that 200 to 300 employees would be retained to insure that we will be able to provide supplies and support and service to the existing small office/home office population," Mulcahy said.
Stamford, Conn.-based Xerox said it had an $82 million loss in its small office/home office business in the first quarter on revenue of $139 million and expects a similar loss from the business in the second quarter.
Xerox said the business required a high up-front investment, which pressured gross profit margins as demand for inkjet products steadily declined.
Service and support centers will remain open and the company will continue to manufacture and market supplies for customers who own SOHO products as it phases out the business. But North American product research and development will cease operations immediately.
"This was a difficult but necessary decision that is consistent with our resolve to execute an effective turnaround by focusing on core office and production growth opportunities," CEO Paul Allaire said. "While Xerox was engaged in active discussions with potential equity partners, the slowdown in the economy and its impact on the PC and SOHO markets prevented these companies from making what was once considered a compelling investment in Xerox's SOHO business."
The move is the latest cost-cutting effort by a company that has fallen far behind competitors in the printer business. Xerox was hurt by an early commitment to its tried and true office copier business just as the market for inkjet printers and "paperless" technologies such as computer networks and scanners exploded.
Xerox since has embarked on a restructuring plan involving thousands of layoffs and the sale of under-performing assets.
In February, the company announced plans to cut 4,000 jobs in 2001. Since then, Xerox has been wracked by several side issues as it attempts a turnaround, including a U.S. Securities and Exchange Commission probe of its accounting practices and racial discrimination lawsuit by former sales associates. |
