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No. of Recommendations: 11

Regarding your (1ST) Rant on Christopher Byron's BLOOMBERG analysis of Xerox:

1.) The brand name alone is worth what the stock is selling for these days. - I agree.

2.) "Piling on" when we are already down just puts more risk into what is for us a life-and-death struggle. - I Disagree, Bryon's analysis may contain errors, but it's good to highlight problems. XRX is down because of many very serious INTERNAL reasons. A major one is that your current CEO has lost all crediability. Without external news (like Bryon's article) investors would be completely left with Allaire as the sole source. Given his track record this is just unacceptable. Perhaps, the Bloomberg piece is off base on a few points (like 1. cited above), but I (as a XRX investor) would rather have articles like that (and boards like this) to rely on instead of PA as a sole source.

3a.) This item is basically two Comments - Xerox people are an incredibly smart, hard-working, creative bunch who have pulled off a miracle or two in the past. - I basically agree, but we let a few miracles slip by. Isn't XRX Mgt the same group of people who let the benefits of the basic PC design accrue to Apple and Microsoft? This can branch off to another rant but I'm deeply concerned that the same thing is going to happen in the near future. There are several HUGE XRX opportunties that seem to be slipping by - Content Guard.

(BTW - I was wondering what would the reaction be if XRX offered to buy Napster and integrate content guard into it's web site?)

and Epaper

3b.) There is more to any human undertaking, even business, than what Wall Street thinks. I have had European colleagues ask me how we get anything done over here with Wall Street breathing down our necks and wringing their hands over every quarter's results.
- Like XRX, the investment community is very diverse, and complex. The loudest outcrying from this diverse community is not from the mutual fund investor (who hire professionals to do their investing for them) or from the day traders, but from Long Term XRX Investors.
This group has voted (with their $) for the XRX team and lost. They've watched those investments decline dramatically in value (while competitors have increased in value). Investors have every right to expect more! XRXFAN - I don't know at what level of XRX you operate. As an investor I expect senior MGT to pay attention to stockholders while middle managers address complex business issues. IMO - If Wall Street's displeasure is affecting all levels of XRX then that's indicitive a problem with Senior XRX MGT. IMO - this can be fixed with leadership.

4.) 914 ......took about 13 years to be successful, while the Docutech took eight. Perhaps, it's taking a little too long to achieve sucess. If we wait 13 years for epaper we will lose to eink (see 3a).

5a.) We have not been a one-trick pony in a very long time. Yeah,the stand-alone copier box will not be as ubiquitous in the future as it has been, but there will still be a market for high-speed, high-volume print-on-demand and off-set displacement. Like the hated Bloomberg piece suggests, - What does Xerox do? Answer: It makes Xerox machines. Yes, there are big Xerox machines ( high-speed, high-volume print-on-demand) and little Xerox machines; but still they're Xerox Machines. With a more dynamic definition of the "Document Company", earlier investors could have seen Xerox own important market segments like those owned by Kinkos, Apple and Adobe (to name a few). For today's concerns see 3a.

5b.) Our offerings were very well received at Drupa recently, and this segment will continue to be important for Xerox. We're exploring this on this board. It's my understanding that Heidelberg's offering was also well received.

6a.) The article glibly failed to address that Xerox is not some briefly flaring, but a respected enterprise with intangible assets not accounted for by summing up receivables and "hard" assets. With minimal cash, and a significant cash flow requirement, the Bloomberg article noted Give the receivables a 20 percent haircut and draw a delete line through the goodwill, and mighty Xerox winds up with barely $1 a share of book value — and that's leaving the inventories untouched. With cash now flooding out the door at a rate of $1.12 billion per quarter, this is a company that could be in very big trouble, very quickly. I believe the larger concern is with cash flow and working captial. Given XRX's recent surprises, Intangible assets aren't going to add much to XRX's cash flow. The article failed to address what Lines of Credit were open to XRX. While these lines will provide protection for short term cash shorages, it's possible that financial covenants may reduce dividends.

6b.) The investment community may hold us in contempt just now, but the buying public doesn't care as long as we can get back in front of them with attractive goods and services. That's what we intend to do, so don't count us out yet. Actually, both the buying public & the investment community care (both have invested time & $ in XRX) We'd like to see a return on those investments ($ in one case, and a continued stream of goods and services in the other) .

Regarding XRXFan points addrssed to me:

[1] As a middle manager I have confidence in Allaire and Mulcahey. Don't underestimate the value of that for morale and smooth execution. .... I have advocated that Allaire get out of the way and let Mulcahey run the show. The longer that Allaire stays the more he limits Mulcahey's chances. The Bloomberg article noted that David Giroux, an analyst who covers Xerox for T. Rowe Price Associates Inc., told Bloomberg News. "Management had limited credibility before, and they have no credibility today." T.Rowe Price is not alone in htis regard. Regardless of your feelings, this is an unacceptable position for a CEO to be in.

.......Booting too many of us out will only compound the problem because we are among the few left who know how to get anything done. It's recognized that a lot of the changes attempted at XRX were necessary. Unfortunately, a lot of these changes were bungled. We also had surprises like Mexico and Brazil. I can hold Thoman and Allaire accountable for strategic direction and leadership problems, but I hold middle managers accountable for execution problems. If XRX has a rigid Political system which is unresponsive to market threats that's a problem.

[2] What happened in Mexico was complex, and certainly has some relationship to the general corruption of that society. Firing Romeril as punishment would only further destabilize the situation. XRX operates throughout the world and has to deal with all sorts of complex relationships (including corruption). I expect these problems to happen. A CFO cannot eliminate all risks, but they need to limit the degree of exposure. When these problems cost $78 million dollars, come as a surprise, and result in an SEC investigation - that's unacceptable.

[3] The human desire to look for heroes and saviors, while understandable, is misplaced, especially in a situation like this. I assure you that no outside top managers who are not citizens of the culture of this Company will truly succeed. They may infuse cash; they may baffle the Street with bullsh*t; they may provide the empty reassurances of public executions and dramatic restructurings; but the benefits will be transitory. Sorry, I disagree. IMO - XRX situation is very similar to IBM in the early 90's or Chrysler in the 80's. These dramatic restructurings probably saved their respective companies and brought substantial value to their investors. If you're saying outsiders will not suceed because the culture is too poltical and the culture will undermine any attempt to change; then I agree that's a real problem. Perhaps, we do need an insider who understands the political culture and is willing to make the necessary changes. We've seen this happen at GE in the 80's and HP in the 90's. In this latter case the status quo is not acceptable and change is necessary at several levels of management.

[4] Human undertakings, including commerce, are complex systems that behave organically, like the weather. We delude ourselves if we believe that we understand all of the variables and can know which ones to tinker with. We are all bailing, rowing, or pedaling
as fast as we can because most of us have our personal net worth tied up in Xerox stock. We want it to come back as badly as you stockholders do -- maybe more becasue we tend to be less diversified.
I agree, it isn't easy, and this is why leadership commands top dollar. As the Bloomberg piece notes The only folks who seem to have made a dime in this fiasco are the Xerox brass. In the last two years the five top executives at the company have collectively hauled off an incredible $17.7 million in cash and stock. Wasn't Allaire one of the five? Did the shareholders get good value? How does this sit with XRX associates?

Bruno the Meateater
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