Can Lexmark Infuse New Life Into Xerox?

Last time I checked Xerox was still the only industry OEM capable of being found in the dictionary.  It’s hard to fathom what has happened at Xerox since Chester Carlson founded the company and in doing so created an entirely new industry.

Once the beacon of the industry who coined the phrase “nobody ever got fired for choosing Xerox”, today’s Xerox is quite different from the company envied and admired by competitors and customers alike.

Following its entrenchment as the dominant industry leader, it wasn’t until the early 90’s and the gradual transition from traditional analog copying technology to digital MFPs that the bloom on the Xerox rose began to fade.  Make no mistake, in those days, Xerox was still very formidable, however, a gradual decline in technology innovation, time to market challenges, pesky competitors and poor corporate strategy all conspired to diminish Xerox’s former dominance ultimately resulting in the position Xerox finds itself in today.

While Xerox is still a well-known player in today’s market it has lost the panache once associated with its vaulted brand.  It has continued to struggle to remake itself into a legitimate player in markets beyond the physical document.  And it has been shrinking faster than Bobby Sands on a hunger strike.  Case in point, Xerox’s most recent annual earnings release for the 2024 calendar year saw the company post revenue of $6.2 billion a decline of 9.5% yoy with a significant decline in Gross Profit and an overall net loss.

We have to remember that it wasn’t all that long ago that Xerox was an industry giant.  In 2012 Xerox was a $20 billion dollar entity.  Since then, however, revenue has declined every year with the exception of 2021 and 2022.  To put this decline in perspective, since 2012 Xerox has had only 8 quarters where it has posted growth vs. the prior year’s quarterly result.

While management has attempted to put the best face on this performance, focusing on the challenges besetting the entire industry both pre and post COVID, it’s hard to make the case that the company has long-term viability given the numbers and the trendline.  It’s also difficult to convince customers and investors that Xerox has an effective strategy capable of stopping the company’s decline and ushering in opportunities for potential growth.

While Xerox’s financial performance would lead many to question their strategy, my view of Xerox from afar is such that I believe their current strategy is quite coherent.  Following what I consider to be many years roaming the wilderness looking for a path forward, the most recent direction articulated by Xerox management, while not jump up and down exciting, does make sense.  With a focus on traditional document printing technology, digital document related services and IT services, these are three pillars where Xerox has long standing expertise and should be recognized by prospective customers as a legitimate supplier.

The questions however are many.  For example, does Xerox’s traditional hardware portfolio offer them competitive parity with the likes of Canon, Ricoh and HP?  Is Xerox well positioned to attack the growth areas still remaining in print, such as within commercial and specialty print?  Is the business model associated with Digital Services capable of delivering growth without necessarily adding new customers?  Are Xerox IT Services capable of being scaled or is Xerox primarily a player in highly commoditized IT service offerings?

For Xerox to stabilize their recent financial declines and ultimately build a stable and dependable profit machine, Xerox must answer the basic questions above and many more.

As a step in this direction, Xerox announced the acquisition of Lexmark, a transaction anticipated to be completed during the second half of 2025.  A transaction valued at approximately $1.5 billion and accumulated debt, the acquisition price for Lexmark is quite reasonable.  Without tearing apart the actual financial aspects of the transaction and the obligatory mentions of synergistic savings, I prefer to focus on the strategic fit.

It is in this area where I believe that Xerox has done quite a bit to help themselves.  With a strong portfolio of prosumer and business print and MFP offerings, Lexmark has a portfolio that fits nicely in areas where Xerox is lacking.  This is particularly true with respect to A4 print and MFP offerings, which happen to be the models of choice for customers replacing existing gear and recognizing they don’t necessarily need A3 technology across their entire office footprint.

Lexmark has a strong reputation for delivering quality product and their device software tools are well respected in the industry.  How Xerox will decide to manage their hardware portfolio going forward and whether the Lexmark or Xerox architecture lives on is an open question.  Either way however, Xerox has lessened its dependence on alternative product suppliers and gained immediate relevancy in the low to midrange markets which should bolster their sales opportunities.

In addition, of all OEMs in the industry, Lexmark is recognized as the most advanced in terms of offering vertical specific solutions.  This should provide Xerox with an advantage when competing with other players and a strong foundation to which they can integrate their existing vertical offerings.

Can Lexmark infuse new life into Xerox?  Only time will tell.  However, with workers headed back to the office and an anticipated jump in traditional printing as a result, Lexmark’s addition may provide the oxygen needed to stabilize Xerox’s core business allowing them to then focus on re-architecting other parts of their business towards scale and sustainable growth.