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Xerox Corp.
(203)
968-3000
800
Long Ridge Road
Stamford, CT 06904
www.xerox.com
Sales
$14.7
billion
Business Description
Xerox is a technology and services enterprise and a leader in the global
document market. We develop, manufacture, market, service and finance a
complete range of document equipment, software, solutions and services. We
operate in over 130 countries worldwide, and distribute our products in the
Western Hemisphere through divisions, wholly-owned subsidiaries and
third-party distributors. In Europe, Africa, the Middle East, India and
parts of Asia, we distribute our products through Xerox Limited and related
companies (collectively “Xerox Limited”).
The document industry is undergoing a fundamental transformation that
includes the continuing transition from older light lens devices to digital
technology, transition from black and white to color, management of
publishing and printing jobs over the internet, use of variable data to
create customized documents and an increase in mobile workers utilizing
hand-held devices. Documents are increasingly created and stored in digital
electronic form and the internet is increasing the amount of information
that can be accessed in the form of electronic documents. We believe these
trends play to the strengths of our product and service offerings and
represent opportunities for future growth. Important areas for growth
include color systems in both Office and Production environments, the
replacement of multiple single-function office devices with multifunction
systems, and the transition of low-end offset printing to digital
technology.
We develop document technologies, systems, solutions and services intended
to improve our customers’ work processes and business results. Our success
rests on our ability to understand our customers’ needs and provide
innovative document management solutions and services that deliver value to
them. We deliver value to customers by leveraging our core competencies in
technology, document knowledge, global sales and service, brand reputation
and value added solutions across our three core markets, high-end production
environments, small to large networked offices, and services led offerings
for large enterprises.
We compete in both monochrome (i.e. black and white) and color segments by
providing the industry’s broadest range of document products, solutions and
services. Our products include printing and publishing systems, digital
multifunction devices (which can print, copy, scan and fax), digital
copiers, laser and solid ink printers, fax machines, document-management
software, and supplies such as toner, paper and ink. We provide software and
solutions that can help businesses easily print books or create personalized
documents for their customers. In addition, we provide a range of
comprehensive document management services, such as operating in-house
production centers, developing online document repositories and analyzing
how customers can most efficiently create and share documents in the office.
Our business model is based on increasing equipment sales in order to build
the population of machines in the field (“MIF”) that will produce pages and
therefore generate post sale and financing revenue streams. The majority of
Xerox’s equipment is sold through sales type leases that are recorded as
equipment sale revenue. Equipment sales represent approximately 25 percent
of the Company’s total revenue. The post sale and financing revenue, which
includes service and consumable supplies, is expected to approximate three
times the equipment sale revenue over the life of the lease. Accordingly,
equipment sale revenue is a key leading indicator of post sale and financing
revenue trends as increased MIF should lead to increased pages and
ultimately increased post sale revenue. The increasing mix of color pages is
also of significant importance to post sale revenue as color pages currently
generate five times the revenue and profit per page as compared to black and
white.
Our reportable segments are Production, Office, Developing Markets
Operations (“DMO”) and Other.
Production
We provide monochrome and color systems for three main customer
environments: production publishing, transaction printing and
enterprise-wide printing. We are the only manufacturer in the market that
offers a complete family of monochrome production publishing systems from 65
to 180 impressions per minute. In addition, we continue to support analog
devices currently installed at customer locations. We offer total document
solutions and services that can scan, view, manage and produce documents, as
well as a variety of pre-press and post-press options to fully meet customer
demands.
Our goals in the Production segment in 2003 were to defend our monochrome
population, be the leader in color, and build on the power of solutions and
services. To reach our goals, we increased our presence in the digital light
production market and implemented a strategy that we call the “New Business
of Printing.” The “New Business of Printing” includes introducing innovative
production systems and solutions to expand our leadership position and focus
on the higher growth digital color opportunities. This “New Business of
Printing” responds to increasing customer requirements for fast turnaround
times, precise quantities, personalization and customization and is built on
the solid foundation of the digital production print on demand market, which
we created in 1990 with the introduction of our first DocuTech Production
Publisher. We provide content creation and management, production and
fulfillment solutions and services to improve our customers’ work processes
and business results. Our digital technology enables personalization and
printing on demand that can eliminate inventory and warehousing costs.
Our results in 2003 included expanded digital light production offerings
with the introduction of the 2101 Digital Copier / Printer, an increased
presence in the commercial print market space with increased services and
solutions that add value for our customers and the full commercial launch of
our DocuColor iGen3 Digital Production Press. We launched the DocuColor
iGen3 in October 2002, installed more than 125 systems and now provide the
product in 34 markets around the world. The DocuColor iGen3 utilizes next
generation color technology which we expect will expand the digital color
print on demand market, as its speed, image quality, personalization and
cost advantages enable the device to capture valuable pages from the color
offset printing market. Utilizing patented imaging technology which produces
photographic quality output indistinguishable from offset print, this
breakthrough technology can produce over 100 pages per minute at an
operating cost of about 5 cents per page. This product is the result of a
multi- year research and development (“R&D”) investment of approximately $1
billion. We expect 400-500 installations in 2004 and we further expect to
realize significant revenue contributions from this product in 2004, 2005
and beyond. We also introduced the following products in 2003:
• In April, we unveiled the Xerox FreeFlow Digital Workflow Collection, our
umbrella workflow strategy which provides simple access to a comprehensive
collection of Xerox and partner offerings that span all aspects of workflow
from design to delivery. The strategy addresses the critical areas of
digital workflow, the process by which print jobs make their way from
submission through final production and invoicing, with a simplified set of
workflow offerings. In addition to our current workflow offerings, Xerox is
working with more than 100 industry leading companies, including Adobe, Creo,
and EFI, on various workflow related initiatives.
• In April, we also introduced the DocuPrint 850 and DocuPrint 425
continuous-feed digital printers that broaden our line of continuous-feed
printers and print at speeds of 195 feet per minute. The DocuPrint 850,
which is configured by pairing two DocuPrint 425s, enables duplex printing
of as many as 850 duplex impressions per minute.
• In August, we introduced the 2101 Digital Copier/Printer that delivers
high reliability and advanced features. This light production copier/printer
targets the fastest growing segment of the black-and-white print-on-demand
market and offers more capabilities at no extra cost. The system prints or
copies as many as 101 pages per minute and addresses the growing need for
advanced finishing, printing, copying and network scanning.
• In September, we launched the DocuColor 5252 Digital Production Press to
strengthen the successful DocuColor 2000 family. The DocuColor 5252 replaces
the DocuColor 2045, and, at 52 pages per minute, is 18 percent faster than
its predecessor but offered at the same price.
In January 2004, we announced our next generation black-and-white production
platform with the introduction of the DocuTech 100 and DocuTech 120
Copier/Printers. These systems define an entirely new “mid-production”
product category as they offer more advanced and robust capabilities than
light-production equipment while at a lower cost than full-production
equipment. The DocuTech100 copies or prints at 100 pages per minute. The
DocuTech 120 operates at 120 pages per minute, establishing a new speed
benchmark for digital copiers.
Office
Our Office segment serves global, national and small to medium sized
commercial customers as well as government, education and other public
sector customers. Office systems and services, which encompass monochrome
devices at speeds up to 90 pages per minute and color devices up to 40 pages
per minute, include our family of CopyCentre, WorkCentre, and WorkCentre Pro
digital multifunction systems; DocuColor printer/copiers, color laser, LED
(light emitting diode), solid ink and monochrome laser desktop printers;
digital copiers; light-lens copiers and facsimile products.
Our goals in the Office segment in 2003 were to continue to improve the
competitiveness of our cost structure, increase our market coverage through
indirect channel expansion, broaden our product offerings and capture growth
opportunities in this market. Our strategy to capture growth remains
centered around three key areas: color, digital multifunction devices and
solutions. We plan to drive the market to color printing and copying by
making color as easy, fast and affordable as traditional black and white. We
continue to lead the transition from single-function machines to
multifunction systems by ensuring that multifunction devices continue to be
more cost-effective.
We provide further value to our customers by offering a range of solutions
including the Office Document Assessment (“ODA”) in which we analyze a
business’ workflow, document needs and then identify the most efficient,
productive mix of office equipment and software for that business, thereby
helping to reduce the customer’s document related costs.
Our 2003 results include a refreshed office product line with new and
enhanced lower cost products offered with aggressive value pricing designed
to reach both small and large customers. Additionally, we continued to
expand our distribution channels by moving more of our sales from direct to
lower cost indirect channels, such as Teleweb and resellers, thus improving
efficiency and reducing costs. Our new products and product platforms
announced in 2003 included the following:
• In February, we announced the DocuColor 3535 Printer / Copier which prints
and copies color or monochrome at speeds up to 35 ppm. This multifunction
device utilizes Xerox-exclusive Emulsion Aggregate (EA) toner, a super
smooth form of dry ink that is chemically grown into uniform particles. It
results in exceptional image quality, high reliability and lower operating
costs.
• In April we announced a suite of 21 new and enhanced office products,
including nine new digital copiers, basic multifunction products (MFPs) that
print and copy, and advanced MFPs that print, copy, fax, scan, and e-mail.
The new line includes black and white and color-enabled devices with speeds
ranging from 16-90 pages per minute that are produced at significantly lower
cost and offered at aggressive price levels. All Xerox digital copiers and
office multifunction systems now belong to one of three families—CopyCentre,
WorkCentre or WorkCentre Pro.
CopyCentre products are affordable choices for customers who want fast,
reliable digital copiers. They are available in speeds ranging from 16 ppm
to 90 ppm and can be upgraded to a multifunction system as customers’ needs
change and grow.
WorkCentre products are cost effective basic multifunction devices providing
copying and network printing options for scanning, faxing, and e-mailing.
Speeds range from 16 ppm to 55 ppm. These products enable companies to
consolidate equipment, save space and energy, and increase office
productivity.
WorkCentre Pro MFPs copy and print at speeds from 16 ppm to 90 ppm in color
and monochrome. They offer open architecture, advanced networking, and easy
integration with solutions from third party providers.
The new WorkCentre Pro C32 and C40 color-capable systems provide the most
cost effective color printing in the industry. Users pay only for color on
pages produced in color; the rest are charged at standard black and white
costs eliminating the penalty typically associated with using color products
to make black and white pages.
Additionally, Xerox has worked with third-party partners to develop network
scanning, faxing and accounting solutions. More than a dozen updated and new
document management solutions were announced in April.
• In September, we introduced the WorkCentre M24, a color-capable device
that offers printing, copying, scanning, and faxing capabilities at a new
low price for mid-range color.
• In September, we enhanced our Phaser printer product line by bringing to
market the Phaser 6250, a 26 ppm letter / A4 size color laser printer that
is the world’s fastest desktop letter size printer. At the same time, we
introduced the Phaser 3450, a 25ppm black and white printer and the
WorkCentre PE16, our lowest priced color multifunction device.
In January 2004, we launched the Phaser 8400 Color Printer which delivers
unmatched value and quality at a starting price of $999. The Phaser 8400 is
based on a new solid ink technology platform and delivers 24 color and
black-and-white pages per minute.
DMO
DMO includes marketing, direct sales, distributors and service operations
for Xerox products, supplies and services in Latin America, the Middle East,
India, Eurasia, Russia and Africa. Over 120 countries are included in DMO,
with Brazil representing approximately 40 percent of total DMO revenues in
2003. In countries with developing economies, DMO manages the Xerox business
through operating companies, subsidiaries, joint ventures, product
distributors, affiliates, concessionaires, resellers and dealers. DMO
operations are managed separately as a segment due to the political and
economic volatility and unique nature of its markets. Our 2003 DMO goals
included revenue stabilization and improvement, a continued focus on cost
structure to improve margins, and increased profitability for growth.
Other
The Other segment primarily includes revenue from paper and other
substrates, wide format systems, consulting services, and Small Office /
Home Office (“SOHO”).
We sell cut-sheet paper to our customers for use in their document
processing products. The market for cut-sheet paper is highly competitive
and revenues are significantly affected by pricing. Our strategy is to
charge a premium over mill wholesale prices, which is adequate to cover our
costs and the value we add as a distributor. We also offer other document
processing products, including devices designed to reproduce large
engineering and architectural drawings up to three feet by four feet in
size.
In line with our strategy to focus on our core business, we announced the
disengagement from SOHO, our former consumer/personal inkjet printer
business, in June 2001. We continue to sell consumables for the inkjet
printers and personal copiers previously sold through indirect channels in
North America and Europe. We expect that sales of these supplies will
decline as the existing population of equipment is replaced.
Competition
We encounter aggressive competition in all areas of our business. Our
competitors range from large international companies to relatively small
firms. We compete primarily on the basis of technology, performance, price,
quality, reliability, brand, distribution and customer service and support.
To remain competitive we must develop new products and services and
periodically enhance our existing offerings.
We are the leader, or among the leaders, in each of our principal business
segments. Our key competitors include Canon, Ricoh, IKON,
Hewlett Packard and in certain areas of
the business, Pitney Bowes, Heidelberger Druckmaschinen Aktiengesellschaft,
Nexpress, Oce, Konica-Minolta and Lexmark.
We believe that our brand recognition, reputation for quality, innovative
technology, breadth of product offerings, customer relationships and large
customer base are important competitive advantages. We, and our competitors,
continue to develop and market new and innovative products at competitive
prices and, at any given time, we may set new market standards for quality,
speed and function.
Ticker
XRX
Printers
Copiers
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