A Closer Look at What Icahn, New Management Might Have Planned for Xerox

Now that the dust has at least temporarily settled in the Xerox-Fujifilm disputes of earlier this year, we thought a close look at what the new management at Xerox – backed by activist investors Carl Icahn and Darwin Deason – might have in store for Xerox.

A blueprint of possible strategies can be found in a presentation published by Icahn last spring.

Among the plan’s possible strategies is to partner with PC vendors who don’t sell printers and copiers, such as Apple, Microsoft, Lenovo, Asus, and Acer. While one PC maker – Dell – does sell printers, it’s hard to envision any of these companies getting involved in the low-margin world of printers and copiers. Apple at one time sourced and sold printers made by HP, Canon, and Fuji Xerox, but probably only because it wanted to ensure Mac-compatible printers for Mac users. It got out of the printer business in the 1990s, likely because there were enough Mac-compatible printers already being sold by other companies, and it didn’t see much profit in selling and supporting them.

Global Imaging Systems

One Xerox wholly owned subsidiary that comes in for criticism under the Icahn plan is Xerox’s Global Imaging System (GIS). Xerox acquired GIS in  2007 for $1.5 billion, and the company is made up of regional office-equipment dealers  that sell printers, copiers, and related services from Xerox and competitors.

The Icahn plan calls for the elimination of duplicate GIS expenses “through network and team consolidation” and the optimization of GIS acquisitions to “maximize Xerox sales.”

The plan also notes that GIS dealers don’t sell only Xerox products, but also sell products from competitors such as HP Inc., Konica Minolta, and Canon, “in heavily concentrated dealer footprints that incur unnecessary duplicative operating expenses. It also criticizes these dealers for websites that “don’t even highlight Xerox products.”

Monetize PARC Intellectual Property

The Icahn plan calls for monetizing technology developed by PARC, Xerox’s research lab in California. According to Icahn and Deason, Xerox failed to monetize the following PARC inventions, all of which were instead monetized by other companies: Ethernet networking; the personal computer; WYSIWYG editing; a graphical user interface for PCs; and Adobe PDF, the last of which was developed by two Xerox engineers and called Interpress.

3D Printing

Although not mentioned in the plan, Xerox CEO John Visentin said 3D printing might be an opportunity for Xerox, stating that Xerox has new technology that could be disruptive in markets such as 3D printing: “We have print heads that could change the 3D-printing industry.”

Fuji Xerox:  “They Will Have to Earn our Business”

The plan also calls for Xerox to explore other alternatives to sourcing its printers and copiers from Fuji Xerox, its joint venture with Fujifilm. It notes that sourcing from competitors is common in the tech industry, for instance, with HP Inc. sourcing from Canon Inc., Apple sourcing from Samsung, and Dell sourcing from Microsoft.

Last summer, CEO Visentin discussed how Xerox may be considering other suppliers: “Fuji Xerox is one of our suppliers, today providing 59 percent of our cost production and we will continue to work with them in areas where they are competitive. We manufacture a portion of the remaining 41 percent ourselves and have high-quality suppliers for the rest. But we are rethinking the way we choose our suppliers.

“The company in the past has not seriously pursued other suppliers. But recently, we were successful in partnering with a supplier for a new product. Just because a supplier has had business with Xerox in the past does not guarantee future business. They will have to earn our business.”

Visentin has also said that Xerox may sell directly in Asia-Pacific without Fujifilm. Fujifilm countered with this statement: “It is again no surprise to hear Xerox’s pretense to sell its products directly into the growing Asia-Pacific market. However, realistically speaking, we believe that it would be extremely difficult for Xerox — which does not currently possess any marketing channel in Asia – to build its own channel from scratch.”

Possible Sale of Xerox

While HP Inc. and Appollo Management are said to have been interested in purchasing Xerox, neither has since approached Xerox. Icahn and Deason haven’t strictly ruled out a new Fujfilm offer from Xerox, but they demand $40 per share – far higher than the original now-scuttled deal of $28 per share. With Xerox trading at approximately $27 per share for the last six months, however, that $40 per share may not be attainable.

One thing that does seem to be off the table is a public auction. CEO Visentin ruled out a public auction of Xerox, noting that such an auction would be time-consuming and costly.

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