Xerox Leaves SoHo Business

ROCHESTER, N.Y.— Xerox, citing difficult economic conditions and mounting losses, reported earlier this month that it is pulling the plug on its entire retail operation and abandoning the production of SoHo products.

Xerox president and CEO Anne Mulcahy called the decision difficult but necessary, since the company lost $82 million on SoHo products in the first quarter of 2001 and expects a similar loss in the second quarter. The products affected are the company's newly introduced inkjet printers, copiers and multifunction printers (MFPs). The phase out will take place during the next six months, she said, but Xerox will continue to offer support and consumable supplies for these products. Most of the retail inventory is expected to be blown out by the end of the summer.

Xerox hoped to offset the expenses inherent in launching a new product line through investment from outside firms. Jim Miller, president of Xerox's SoHo business group, said talks had been undertaken with a variety of PC vendors, digital camera makers and office product manufacturers, but none of the deals was sealed.

"The slow down in the PC business and lower inkjet [retail] prices kept investors away. We expected rapid growth in the inkjet market but in the last few months it has fallen apart and will not recover anytime soon," said Mulcahy, explaining that the companies would have been more interested if economic conditions were better.

Xerox's shaky financial state did not allow it to wait for the PC and inkjet markets to turn around and the company had to make take immediate steps in order to continue with the its plan to regain profitability later this year. The SoHo business group was on track to turn a profit between 18 and 24 months down the road, Miller said.

All research and development activities for SoHo products will immediately cease and the remaining inventory will be closed out through retailers and other channel sources.

"Our exit plan will generate a savings of at least $100 million in the second half," Mulcahy said.

Layoffs will also take place. About 1,100 of the 1,500 people in the SoHo business division will lose their jobs, most of them in the Rochester area, Miller said. Mulcahy added that some workers will be transferred to other areas, and those dealing in support and supply will keep their positions.

Last week's announcement directly contradicts the rosy picture Xerox painted for its inkjet and MFPs just two months ago and is an indicator for how fast the inkjet market has sunk. At that time Marc Young, the SoHo group's strategic marketing VP, said the company's overarching financial situation and reorganization being implemented to regain profitability would not affect the retail products development.