Over the next six months, Xerox will discontinue its line of personal ink jet and xerographic products sold primarily through retail channels. However, the company will continue to provide service, support and supplies for customers who own Xerox SOHO products.
"This was a difficult but necessary decision that is consistent with our resolve to execute an effective turnaround by focusing on core office and production growth opportunities," said Paul A. Allaire, Xerox chairman and chief executive officer, in a press release. "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."
"By exiting the SOHO business, Xerox will generate significant cash savings and improved earnings that are incremental to our previous expectations to return to profitability in the second half and for the full year," said Anne M. Mulcahy, Xerox president and chief operating officer, in the same release.
The ink jet model required an upfront financial investment, which turns to high-margin profitability as an increasing equipment population drives the recurring and profitable sale of supplies.
"In a short period of time, the market for ink jet has changed dramatically, and recent data indicates that the slowdown will continue," added Mulcahy. "Xerox is therefore 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."
In the first quarter of 2001, the company recorded a $82 million pre-tax loss in its SOHO business. Revenues for SOHO were $139 million, representing three 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 will be announced with the company's second-quarter results.
The company confirmed its unwavering commitment to the office printing business, building on its successful acquisition of Tektronix's color printing and imaging division. Xerox will continue to fuel future growth in color and monochrome printers designed for networked offices and sold through indirect channels worldwide.
Service and support centers for customers who own Xerox SOHO products will remain operational, and the company will continue to manufacture and market supplies during a phase-down period to meet customer commitments. SOHO product research and development in North America will cease operations immediately. Xerox is beginning consultation with European employee worker councils to discuss changes for the SOHO European business, including its ink jet manufacturing facility in Dundalk, Ireland.
Xerox intends to sell its current inventory of SOHO products through existing retail and other channels worldwide.
