Xerox Not Just a Pale Copy of Its Former Self

A New Yorker cartoon in the 1960s showed a dying man in a hospital bed saying in parting advice to his wife: “Don’t sell Xerox.”

It was a good joke at the time. Xerox Corp. had introduced its copier in the 1960s and earned a reputation as the very model of a fast-growing technology company--and a stock that only went up.

But the widow should have sold her Xerox, because the stock has gone down almost continually since hitting $172 a share in 1972. It fell as low as $42 in 1982 and hasn’t sold above $100 since 1974.

What happened? Xerox went from model to bad example. In the last two decades, the company blew a tremendous advantage, then struggled to regain competitiveness and now is fighting it out in world markets amid persistent doubts about its competence.

And the time has come to resolve those doubts--which is why Xerox is trading actively these days, at about $65 a share. There is talk that Xerox is getting its act together; it recently announced plans to get out of money-losing businesses and to trim its legendary bureaucracy.

There is also skepticism--”Xerox Rethinks--Again” said a Business Week headline on its latest reorganization. And that has led to talk of takeover and breakup. The market is saying Xerox’s new series of copiers and laser printers had better succeed in boosting earnings and the stock price, or a buyout will be launched. Wall Streeters, such as analyst Alex Henderson of Prudential-Bache, are estimating breakup values as high as $120 a share.

It may sound incredible that proud Xerox should be subject to speculation about breakup. But like many U.S. companies, Xerox earned its tarnished reputation.

It got comfortable. In the 1960s, the Xerox copying process was so ringed by patents that the company thought it need never fear competition. But within a decade, competitors had developed their own processes, and in the early ‘70s Japan’s Ricoh, Canon and Minolta caught Xerox napping.

The company at first chose not to compete with their smaller, cheaper copiers and retreated to its base in higher-priced, large copying machines. It took years before Xerox woke up and fought back.

High-Minded Company

Then there were years of wasted potential as Xerox became incredibly inventive--but ignored its own inventions. Xerox’ Palo Alto Research Center pioneered the principles behind Apple’s Macintosh computer, Sun’s engineering workstation and Microsoft’s software. Yet Xerox used few of those inventions and used none of them well.

Xerox flubbed businesses that should have been naturals--such as the fax machine--and went into businesses where competition was way ahead, like medical X-ray, which it is now dropping at a loss.

Ironically, while it was declining, Xerox’s reputation was better than today. It was respected as a high-minded company, staffed with intelligent, thoughtful people. That thoughtful people could play office politics--one part of Xerox stymieing product development in another--wasn’t recognized until recently. “Don’t sell Xerox”? It’s a wonder anyone would buy it.

Except that Xerox--again, like many U.S. companies--is better than its current press notices, more competitive than it’s been in years.

Xerox has been taking market share from its international competitors for years--thanks to tough-minded policies. Xerox has been forgoing price increases to regain customers, sacrificing short-term profit and letting the stock price slumber. It has spent heavily on product development, while Ricoh, Canon and Minolta have cut back programs.

And now Xerox may be ready to deliver a clincher. Its new Series 50 copiers and laser printers are 20% cheaper to manufacture than past models. “They can deliver lower cost and lower maintenance to customers,” says Brian Fernandez, research director of Brean Murray Foster Securities, who thinks that the new line will benefit profits dramatically in 1989.

Which might restore not only Xerox’s stock price, but its standing as a model for U.S. industry: an object lesson that though you can’t be comfortable in today’s world markets, by playing for the long term, you can be both profitable and competitive.