Xerox warning unsettles Wall Street

Xerox has tried to re-invent itself as "the document company"

The world's largest maker of photocopiers, Xerox, has issued yet another profit warning, as it struggles to reorganise its business.

The company reported sharply reduced earnings for the second-quarter, down more than 50% to 30 cents a share. A year ago, Xerox had posted earnings of 62 cents a share.

The Reading Eye Dog, developed by Xerox, recites printed material placed on its reading stand

Wall Street reacted with dismay to the figures. The price of Xerox shares dropped more than 15%, and the result is likely to undermine investor confidence in the technology sector.

Amid a string of worries, the technology-heavy Nasdaq market was down more than 120 points, before recovering to a fall of just 441 points.

The Dow Jones index, however, dropped more than 183 points.

A broker's downgrade of online retailer Amazon was also quoted as a cause for the slide in share prices.

Before the news from Xerox, many analysts had expected strong gains on Wall Street, following good results from tech firms eBay, Compaq and Nortel Networks on Tuesday.

Xerox results were actually in line with Wall Street estimates, but those had already been sharply lowered in anticipation of a drop in profits.

And things are set to get worse.

The Xerox lab at Palo Alto, once the hotbed of the technological revolution

Chairman Paul Allaire blamed stronger competition and "market dynamics" for the "need for a significant downward adjustment to current second-half expectations".

The company had problems shifting its highly profitable publishing products.

Most sales now come from lower margin products and services.

Accounting irregularities at its Mexico subsidiary created further trouble, and prompted an investigation by the US Securities and Exchange Commission.

Mr Allaire, though, promised that a turnaround would be felt from the fourth-quarter onwards.

The firm recently sacked its chief executive Rich Thoman, following a messy reorganisation that cut deep into profits.

Xerox president Anne Mulcahy said there was "no doubt" that recovery was taking longer than expected.

But she added that management had focused on "stabilising the situation", while "achieving renewed growth" would take more time.

Xerox and its famous research laboratory in Palo Alto, California, once were at the cutting edge of the high-technology industry.

In recent years, however, the company has failed to capitalise on its power to innovate.

Investors have not taken kindly to the development. Xerox's share price has collapsed, down from more than $60 one-and-a-half years ago, to just over $18 on Tuesday.