The Wide-Format Imaging website and the Rochester Democrat and Chronicle website broke the story that Xerox will cease selling wide-format printers, copiers, and finishers in North America by year¡¯s end. A Xerox spokesperson confirms, ¡°Xerox will stop taking orders for wide-format products in the U.S. and Canada in 2011, with specific timing based on inventory levels.¡± Given the news that it is exiting this market, we are sure that Xerox will see relatively few sales of wide-format equipment between now and the end of 2011. The company plans to provide existing customers with support, supplies, media, and parts for a minimum of five years from the last installation of a particular product line.
When asked why Xerox decided to exit this market in North America, the Xerox spokesperson tells us, ¡°Xerox prioritizes each investment, allocating research and development dollars to areas where the company can deliver the best value to the marketplace. As a result of this practice, Xerox has opted to not invest in wide format product engineering in 2011.¡±
While Xerox would not comment specifically on the financial performance if its wide-format business, it seems safe to assume that results were not good, nor was the outlook for this business. Xerox does not break out the performance of its wide-format business in its quarterly results. The group¡¯s results are lumped in the ¡°Other¡± category. According to Xerox¡¯s last annual report, this includes ¡°several units, none of which met the thresholds for separate segment reporting. This group primarily includes Xerox Supplies Business Group (predominantly paper sales), Value-Added Services, Wide Format Systems, Xerox Technology Enterprises, royalty and licensing revenues, GIS network integration solutions and electronic presentation systems, equity net income and non-allocated Corporate items.¡±
The equipment sales line in the ¡°Other¡± category in Xerox¡¯s 2009 annual report (see website) shows a steady drop in revenue from $252 million in 2007 to $249 million in 2008 to a mere $156 million in 2009. The year 2009 was obviously a bit of an anomaly for the industry as a whole as this was the height of the recession, and the wide-format category was, perhaps, one of the printer/MFP market segments hardest-hit by the economic downturn.
Xerox did not break out equipment sales in the ¡°Other ¡°category in its most recent financial report for the fourth quarter and full year 2010 (see website) and has yet to publish its annual report for 2010. Still, total revenue in the ¡°Other¡± category declined from $434 million in 2009 to $420 million in 2010, while profit improved from a loss of $79 million in 2009 to a loss of $66 million in 2010. The ¡°Other¡± segment of Xerox¡¯s business does not seem to have experienced a strong bounce back from the recession. Now, Xerox is deciding to trim itself of a business that may be dragging down results in this category¡ªnamely its wide-format business. While we suspect that equipment sales in the ¡°Other¡± category improved in fiscal 2010 compared with the miserable year prior, this is not certain, and if installations have improved, Xerox has deemed any improvement, at least in the wide-format portion of its business, too little too late.
That Xerox¡¯s wide-format business was not performing well is not particularly surprising. To a large extent, it is a reflection of declines in the mature wide-format market segments in which Xerox participated and of the competition Xerox faces in this space from firms that are better known in the wide-format market.
For example, Xerox offers a line of wide-format monochrome eletrophotographic printers/copiers for technical graphics environments, such as computer-aided design (CAD); architectural, engineering, and construction (AEC); and commercial print shops. Xerox¡¯s monochrome wide-format machines use LED engines from Fuji Xerox, the joint venture with FujiFilm Holdings in which Xerox has a 25 percent stake. Most analyst groups agree that this is a market segment that has been in decline for some time. Xerox also has some well-known competitors in this space such as KIP, Oc¨¦, and Seiko I Infotech.
Xerox¡¯s color wide-format solutions, such as the Xerox 8265, 8290, 8254E, and 8264E are eco-solvent machines that use Mutoh engines. Analyst opinions about the robustness of the eco-solvent market vary, but InfoTrends, for example, projects a decline in the overall solvent market, saying that many end users are choosing to invest in other technologies such as aqueous inkjet (including HP Latex ink) and UV-curable (see InfoTrends press release). There are many competitors in this market that may be better known to print service providers for their wide-format eco-solvent products¡ªcompanies such as Agfa, Mimaki, Mutoh, and Roland, and Seiko I Infotech, among others.
What is surprising to us about Xerox¡¯s exit strategy is that it applies to North America only. The company¡¯s Xerox Europe (XE) and Developing Markets Operations (DMO) will continue to sell wide-format products and source new ones. Xerox¡¯s spokesperson explains, ¡°This is a matter of sharpening our focus to those segments where we can provide the best value to our customers and the best growth opportunities for the highest possible return on investment. Xerox is stopping the business in North America and not in XE and DMO because each Xerox operating company is empowered to make their own sales channel decisions, and in this case, the North American operating companies have decided to focus their resources on other lines of business that are aligned to 2011 Corporate R&D prioritizations.¡±
When asked if exiting the wide-format business in North America will result in any layoffs or staff reorganization, the Xerox spokesperson would say only, ¡°The business has fewer than 70 dedicated employees that are affected.¡± So, it is possible that there will be some layoffs but not in significant numbers. Xerox says that as of the end of December 2010, it had 136,500 employees worldwide.