Xerox sells half its plants for $220m

Anne Mulcahy has promised profitability this year

Xerox has said it is to sell half its office equipment making operations to Flextronics for $220m to fulfill a pledge to cut $1bn in costs.

The loss-making photocopier firm said the agreement with Singapore-based Flextronics "represents in excess of $1bn in annual manufacturing costs, approximately 50% of Xerox's overall manufacturing operations".

The deal includes a five-year outsourcing contract for Flextronics to manufacture equipment for Xerox.

Xerox will gain greater flexibility to increase and decrease production at "very short notice", said Larry Vogel, a spokesman for Xerox Europe told BBC News Online.

UK jobs to go

Xerox will close two US plants, employing 690 workers, by the end of June 2002 - the printed circuit board factory in El Segundo, California and a smaller plant in Utica, New York.

The company has a bright future, it has major contracts but they're clearly going to supply them from another country

Roger Lyons, MSF union

It also plans to reduce the 1,500 workforce at the UK site at Mitcheldean in Gloucestershire by shedding between 920 and 1020 staff, according to Mr Vogel.

Their work will be transferred to Flextronic, most likely to a contract manufacturing plant at Brno in the Czech Republic, leaving about 400 staff at Mitcheldean, he said.

And he denied that Xerox has failed to consult the trade unions, saying it opened discussions on 2 October.

"Until very recently we did not have a proposal to present to the works councils. We do have a proposal today, it is concrete today so that is why we're beginning the consultation process," he said.

Union anger

Xerox has made a "brutal" and "unilateral" decision and failed to consult its officials ahead of Tuesday's announcement, said Roger Lyons, general secretary of the Manufacturing, Science and Finance Union (MSF).

Xerox is switching into digital machines

Mr Lyons, who is attending the ruling Labour Party's conference in Brighton, wants the government to intervene and hopes to discuss the issue with ministers on Tuesday evening.

"The company has a bright future, it has major contracts but they're clearly going to supply them from another country", Mr Lyons told BBC News Online.

Profitability hopes

Under its global deal with Flextronics, Xerox will transfer about 3,650 other staff to the Singapore-based firm, together with factories in Canada, Brazil, Mexico and Malaysia.

Xerox president and chief executive Anne Mulcahy said the deal will "redefine our office manufacturing strategy".

Benefits will include significantly improved asset utilisation, greater supply chain flexibility and cost savings as well cash from the asset sales, she said.

Ms Mulcahy has committed the company to returning to profitability by the end of 2001.

Sunset sector?

Xerox became famous for making photocopiers but it has been trying to shift its operations into digital office technology.

The ailing copier company said in January it was cutting 4,000 jobs on top of 2,000 announced late last year as part of a plan to pare $1bn in costs.

It triggered investor concern in April when it delayed publication of its 2000 financial results and eventually had to deny market rumours that it was facing bankruptcy.

Not as bad as expected

Xerox said it will incur a cash restructuring charge for the asset sale and plant closures "approximately equal to the premium over book value from the asset sales".

Work from the two US plants which are being closed will be transferred to other factories, it said.

Xerox reporting a loss of $86m for the first quarter of 2001, compared with a profit of $220m in the year-earlier period.

However, the loss was not as bad as analysts had expected.

Flextronics was earlier this year chosen by Ericsson, the Swedish telecoms firm, to take over the manufacturing operations of its mobile phone handset unit.

The company also makes handsets for French firm Alcatel and some large-format printers for Hewlett-Packard under similar outsourcing deals.