Lexmark Employees Warn of 45-Percent Workforce Reduction, APEX to ‘Absorb Lexmark R&D, Shift Operations to China’


Last week, Lexmark International reported that its shareholders had approved a merger agreement under which Lexmark would be acquired by China’s APEX Technology, PAG Asia Capital, and Legend Capital. This week, Wirth Consulting received a letter from the anonymous Lexmark Employees for Ethical Conduct warning that if APEX and investors succeed in acquiring Lexmark for $3.6 billion, the companies will first reduce Lexmark’s workforce by 45 percent, and APEX will “absorb” Lexmark’s research and development and move its operations to China.

The previous anonymous letter we received from Lexmark Employees for Ethical Conduct that we received in May 2016 warned that Lexmark’s acquisition would present a U.S. national security risk, as many Lexmark smart printers and MFPs are used by U.S. defense agencies and that for instance, APEX could potentially hack these devices in order to obtain sensitive national-security information that it would then relay to the Chinese government (see our story here for more). The Lexmark acquisition – which the firm expects to complete in the second half of 2016 – remains subject to various regulatory approvals, including approval by the Committee on Foreign Investment in the United States.

This new letter paints a picture of difficult times and lay-offs at Lexmark. In all fairness, considering current weak global economic conditions and difficult business-strategy transitions, this is something we’ve also been aware of at other office-imaging companies, and for instance in July 2015, Lexmark had announced 500 lay-offs (see here). Lexmark management has also said that the acquisition would open up substantial markets in Asia-Pacific for Lexmark printers and MFPs, reinvigorating the company, which has suffered from declining revenues and a first-quarter loss this year.

The Lexmark employees’ letter warns of alleged upcoming layoffs, however, noting that “most Lexmark managers, including those in CorpComm and WW Marketing, are advising their staffs to seek employment outside of Lexmark before the local employment market is flooded.” Among those who have lost their positions are reportedly those in Lexmark’s investor-relations group, while the letter states that Lexmark is allegedly “quietly eliminating ESS” (Enterprise Software Services) “middle management,” and “are aligning all staff of all acquisitions under Reynolds Bish, V.P. of Lexmark’s ESS division.” The letter speculates that Lexmark’s ESS division will be sold, stating, “Clearly, they (Lexmark management) are already prepping the ESS division to be sold” adding: “Streepy and Knight have advised ISS development staff to end collaborative efforts with ESS.” (Editors Note: ISS may be an acronym for Intelligent Security Systems).

Apparently, according to the letter, the alleged “next round” of “substantial layoffs” will be at the request of APEX Technology’s  “upper management.” The letter states that APEX management has requested that Lexmark management “reduce Lexington HQ staff to 1,000 persons.” Currently, the letter states, there are about 1,800 employees at Lexmark’s Lexington, Kentucky, headquarters, so this would be a 45-percent reduction in the workforce.

Once the workforce is thus reduced, the letter speculates that Lexmark’s American staff would be replaced with Chinese staff. It also states that “huge workspaces” at the Lexmark campus are already being “isolated and converted for APEX staff.” It notes, however, that” “Reductions in ESS staff may be deemed irrelevant if ESS is sold; however, forced attrition in ESS will occur mainly at (Lexmark’s) Perceptive (Software group). It’s unclear if Perceptive Software will be disbanded, but it is very likely the Lenexa KS campus will close and the new Perceptive HQ building will be sold. It’s nearly half empty at this time and the excess space is for rent by CBRE.” The letter also states that: “Reducing ESS staff also makes an acquisition more attractive to a new buyer.”

Some Employees Said to Plan on ‘Undermining’ APEX Management

If Lexmark’s sales to APEX Technology and investors goes through, some Lexmark employees may choose a course of “resisting” the new APEX management, as the Lexmark Employees for Ethical Conduct  letter states that it: “is also aware of efforts within hardware and embedded-systems development teams to resist and undermine new management should the sale be consummated.” The letter goes on to state: “There have been meetings in which developers have openly expressed their disgust of being owned by a firm in Communist China.” The letter states that “tensions are high,” as various Lexmark developers feel that the Lexington research & development division “will be around only until the Chinese absorb the needed skills and then move operations to China.”

The letter also warns that “the printer/copier industry is also very disturbed with the prospect that APEX will move Lexmark toner development and manufacturing to China” and then allegedly would subsequently flood the the market with low-cost, name-brand and generic toner that would “unravel the entire profit model for all manufacturers and OEM partners.”

The Lexmark Employees for Ethical Conduct group’s letter concludes by questioning the necessity of Lexmark’s proposed sale to APEX Technology and investors, noting that Lexmark “led the industry” by introducing the world’s first printer-based modular MFP in 1999 – since followed by four subsequent generations of Smart MFPs, and that Lexmark also markets advanced document and workflow software. Finally, it alleges that Lexmark has offered “a $10,000 reward for any person that provides information” leading to the identification of the anonymous Lexmark Employees for Ethical Conduct group so that they may allegedly “brought to the FBI for questioning.”

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