Xerox Says So Long to SOHO Business Segment9 Oct, 2001 By: Bruce Thatcher imageSource
Xerox Says So Long to SOHO Business Segment
June 14, 2001, Xerox announced its exit from the small office/home office (SOHO)
business segment in a move that company says will sharpen its focus and support
its turnaround strategy. Its exit, which will occur over the next six months,
will see Xerox discontinue its line of personal inkjet and xerographic products
that are sold primarily through retail channels. In making the announcement, the
company added that it would continue to provide service, support, and supplies
for customers who own Xerox SOHO products.
a company press release, Xerox chairman and CEO Paul Allaire, noted that this
was a difficult but necessary decision consistent with Xerox’ resolve to
execute an effective turnaround by focusing on core office and production growth
opportunities. He added, “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.”
predicts this exit will generate significant cash savings and improved earnings
that are incremental to its previous expectations to return to profitability in
the second half of its fiscal year and for the full year. For Xerox, the inkjet
model requires an up-front financial investment, which turns to high-margin
profitability as an increasing equipment population drives the recurring and
profitable sale of supplies.
a short period of time, the market for inkjets has changed dramatically, and
recent data indicates that the slowdown will continue,” added Anne Mulcahy,
Xerox president and chief operating officer. Mulcahy is adamant that Xerox is
making the right decision at the right time. “We will be better positioned to
build the new Xerox around our core strengths in the production printing and
network office environments, focusing on high-growth opportunities in color,
solutions and services.”
the first quarter of 2001, Xerox recorded a $82 million pre-tax loss in its SOHO
business. Revenues for SOHO were $139 million, representing 3 percent of total
first-quarter revenues. Xerox expects its second quarter pre-tax SOHO operating
loss to be similar to the first quarter. The accounting treatment and a related
charge are expected to be announced with the company's second-quarter results
later this summer.
Fit For Printing
it is exiting the SOHO market, Xerox confirmed its commitment to the office
printing business, building on its acquisition of Tektronix’ color printing
and imaging division. The company will continue to devote resources to fuel
future growth in color and monochrome printers for networked offices and sold
through indirect channels worldwide.
reports that service and support centers for customers who own its SOHO products
will remain operational, and the company will continue to manufacture and market
supplies during a phase-down period to meet customer commitments. The company
also announced that SOHO product research and development in North America would
cease operations immediately. In the meantime, Xerox is beginning consultation
with European employee worker councils to discuss changes for the SOHO European
business, including its inkjet manufacturing facility in Dundalk, Ireland. For
now, Xerox will sell its current inventory of SOHO products through existing
retail and other channels worldwide.
exit of Xerox from the SOHO market is not as surprising as its decision to enter
it in the first place. Xerox was late to enter the market and once it had
decided to enter the market it lacked the financial resources to build a
business where profitability relies on the supplies used by a large install
paper, the alliance between Xerox, Fuji Xerox, and Sharp announced in June 2000
appeared ideal; however, at the time, CAP Ventures anticipated that several
inhibitors could emerge that could stymie the alliance in delivering on its
ambitious growth forecast. In hindsight, these inhibitors were exacerbated by
the declining market conditions for peripherals that proved telling. Those
high level of competition that exists in the inkjet market which thwarted
Xerox's late market entry. Xerox struggled to achieve both shelf space and
column inches. Xerox’ weak competitive position in the personal inkjet
business proved to be an insurmountable barrier against the established market
sensitivity at the low-end of the market continued to increase, with Lexmark
having only recently announced three new sub-$100 inkjet units for shipping this
summer. Xerox had said that it would not compete on price in the inkjet market.
From this it was clear that Xerox was not aware of the market dynamics in the
consumer and SOHO channels-- where revenues may not be derived from unit sales,
but over the longer term as the installed base continues to buy and uses
consumables. Last January, Xerox did announce price reductions on this inkjet
line but prices have continued to drop. Given that the installed base of
operating units is the key to profitability in the consumer and SOHO markets,
Xerox needed to pursue deals with the major PC manufacturers and resellers who
bundle printers with PC’s for one low price. To attract these bundles they had
to be prepared to compete on price. This is an important strategy for building a
broad base of printers that consume ink and paper. Xerox was not successful in
this important channel.
continued to face both purchaser and channel acceptance issues. They were seen
as a copier company, and this counted against it as the company tried to extend
its interests into the consumer inkjet arena.
is not to say Xerox could not have achieved its target, but it would have
encountered several severe inhibitors in reaching its goal--a test of will and
courage as well as financial resources. Perhaps the greatest of which was the
inevitable aggressive response from established competitors with
Hewlett-Packard, Epson, Canon, and Lexmark, all of which are keen to freeze out
any potential threats to future market development.
did not have much of a presence in the low-end and consumer markets before 1998.
At the end of 2000, Xerox held a 1.1% share of the overall personal printer
market in the U.S. and a 1.2% share of the U.S. color inkjet market.
Ventures views Xerox’ exit from the SOHO market as a positive move by the
company. It provides them with resources to devote to more profitable parts of
the business. It is also further evidence that Xerox can be a smaller, but more
profitable and focused business. Although it must be disappointing for Xerox to
have not found a more graceful way out of the SOHO market (they had hoped to
find an equity partner), just existing is still the right move.