Newsmaker: Breathing new life into Xerox

Less than five years ago, a number of industry watchers were ready to write the obituary for Xerox.

Poor sales, huge debt and an accounting scandal were sucking the life out of the document expert. But then in stepped Anne Mulcahy, a Xerox insider who started out as a saleswoman in 1976 and had slowly worked her way up through the company's ranks.

She was named CEO in mid-2001 and chairman less than six months later. Mulcahy has worked relentlessly since then to resuscitate the company.

Today, Stamford, Conn.-based Xerox is well on the road to recovery, though it has suffered setbacks along the way. Net income in the first quarter of 2006 was down 4.8 percent year over year, and revenue was down 2.1 percent. But Mulcahy still expects the company to return to full health, especially once its transition from analog to digital technology is complete.

CNET News.com recently sat down with Mulcahy to discuss Xerox's strategies, the company's future, the role of female CEOs, and her long tenure at one of the tech industry's stalwarts.

Q: You pulled Xerox out of a near-fatal slump back in the early 2000s, but it's been a hard recovery. In the most recent quarter, the company's net income and revenue were down. When do you think you can return Xerox to a consistent growth curve?
Mulcahy: First of all, I probably would say I didn't pull Xerox out of a near-death slump. It was a whole population of Xerox people who did extraordinary work in a relatively short period of time, and I think we have been making great progress.

It's been a pretty consistent, positive curve up over the last three years in terms of earnings improvements and consistent progress on revenue. We're in the process of a transition from analog to digital...We're just about there, meaning that our analog business is now de minimus, but it's still a drag on overall revenue.

We're just going to continue to do what we are doing--and that is set expectations, meet them and deliver.

If you take out the analog business, our revenues have been growing for a while now...This last quarter we had some challenges on the cost side more than on the revenue side...But we're quite confident that we really do have a business model that's been delivering very predictable, improving returns and that we will be on that track for the full year.

Xerox's strategy emphasizes color printing and lucrative consulting services. Is that not a hard place to be in because of competition from Hewlett-Packard, Kodak, Canon, Dell and the like?
Mulcahy: There's no question we've got some pretty noble competitors out there in terms of our business. But I think...our value proposition is the integration of great technology, very good services and support--now including document-management consulting--and certainly a set of embedded software capabilities that differentiate our technologies.

So it's that kind of total value proposition that solves a customer problem that really does separate us from the rest of the pack. You look at the traditional competitors, Canon and Konica and Ricoh--all those folks are still very much in the hardware space and really have not been able to develop the kind of global solution and services capabilities that Xerox has.

I think our focus on the document management space has been also a great value to our customers. It's an area that hasn't been focused on by the traditional IT consultants. And it really does provide a level of expertise to our customer that's somewhat unique in the world of consulting services.

Do you have any competitors in that specific field?
Mulcahy: We actually have more partners than we have competitors. We work with EDS and IBM and Accenture. And we are very much turned to as the expert in imaging and document management with the broader IT consultants.

I think the good news is, is that there's not really a direct face-off competitor. Maybe HP would be the closest, but we've been building up a set of direct global resources in the services and consulting business of document management for a long time now.

Services now make up 25 percent to 30 percent of Xerox's business. You said last fall that you expect this figure to grow to 50 percent in the next few years. Does that assessment still hold?
Mulcahy: I think it does. Services grows faster than the core business, and we do find that our customers want us to be services-led, particularly major enterprise customers where they really want to buy the service capabilities--not necessarily acquire the technology.

On his show, "Mad Money" host Jim Cramer has been a consistent critic of the Xerox leadership. What do you think critics like Cramer are missing?
Mulcahy: Well, I must admit we kind of stay focused on our business and delivering returns to our investors. But I think (criticism comes when) you don't know our business well, you don't understand the business model, you don't understand the transition from analog to digital, the transition from black and white to color, the transition from offset to digital technologies--all of these trends are ones that provide enormous growth opportunities for Xerox.

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