Fujifilm CEO Still Wants Xerox, But Will HP Beat Him to the Punch?

According to the Nikkei Asian Review, Fujifilm – which last year lost a bid to acquire Xerox – will focus on its healthcare business, as its copier business is said to slow. But its Chairman and CEO Shigetaka Komori still has Xerox on his mind.

Fujfilm’s copier business currently makes up 41-percent of its sales and half of the company’s operating profit. (Fujifilm sources its copier hardware from Japan-based Fuji Xerox in a partnership with Xerox, under which Fujifilm owns 75 percent of Fuji Xerox and Xerox owns the remaining 25 percent.)

Despite the overall gradual slowing of office print and copy volumes, Komori however still sees growth potential, telling the Nikkei Asian Review that growth is possible “by rethinking the way we market products and pursuing organizational reform.”

When asked about Xerox, Komori said that “both companies need each other” and “can build a better relationship.”

But despite Komori’s seemingly conciliatory words, in June 2018, Fujifilm filed a $1 billion lawsuit against Xerox for ending the complicated deal that would have seen Fujifilm acquire a majority interest in Xerox, which would would have been led by former Xerox CEO Jeff Jacobson (now CEO of Electronics for Imaging). Xerox sought to have the $1 billion case dismissed, but a judge declined to do so, and the legal process of discovery is said to be nearly complete at this point.

Xerox Eyes Other Hardware Vendors

At the same time, current Xerox CEO John Visentin has said that Xerox might source hardware from other OEMs. In June 2019, Xerox did indeed expand its relationship with HP Inc. Among other things, under the expansion, Xerox will source MFPs and printers from HP, and Xerox will supply toner for these machines. Xerox had previously sourced this hardware from Samsung, but Samsung’s printer business had been acquired by HP, so the move was perhaps not that unusual. But the partnership also more closely ties the two companies in together, with Xerox’s ConnectKey platform running on the hardware, and Xerox becoming a reseller of HP PCs and displays.

At the same time, new Xerox management – backed by activist investors Carl Icahn and Darwin Deason, who were instrumental in nixing the Fujifilm deal – have continued to question Xerox’s partnership in Fuji Xerox, which expires in 2021. Xerox CEO Visentin has told Komori that “massive and ongoing fraud” is grounds not to renew the Fuji Xerox partnership, but Komori has said those issues have been successfully resolved.

A withdrawal from Fuji Xerox would limit Xerox in Asia-Pacific, but last year, according to Reuters, Xerox named Steven Bandrowczak as its chief operating officer as a step to for Xerox to “build its own supply chain in the fast-growing Asia-Pacific market.”

HP to the Rescue?

While we and others have speculated that HP Inc. might purchase Xerox – or at least parts of it – HP’s own continuing problems with its slowing printer/copier supplies revenue may be giving it pause about making any big investments at this time – not to mention the $1 billion Fujifilm lawsuit

On the other hand, HP’s supplies-revenues problems appear to be at the lower end of the market, where customers are generally free to purchase supplies from anyone, not at the higher end, where the purchase of HP  OEM supplies can be locked-in with managed print services, an area where Xerox is said to be a global leader. Moreover, a huge gain for HP would be access to Xerox’s direct and reseller channel, as well as access to its ConnectKey technology. HP has penetrated about 10 percent of the A3 copier market at this point, but gaining more share is high on its agenda. Both companies could reduce costs by pooling resources, and both share the same language and culture, making integration easier.

It’s hard to think of many companies that has been through the storms that Xerox has been through, and its best bet may well be with HP. Along those lines, Xerox has hired several key former HP executives, and Icahn and Darwin have stated that they would welcome partnering with a “PC company,” specifically mentioning HP (also mentioning Apple and Lenovo, the likelihood of which seems very small).  (HP is also said to have inquired about a purchase in January 2018.) While Fujifilm’s Komori may still have Xerox on his mind, the tension between the two companies, the $1 billion lawsuit, and Carl Ichan’s demand for $40 per Xerox share appear to make an acquisition highly unlikely. Anything is possible, but we still see the joining together of two iconic American companies, Xerox and HP, as a good possibility.

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