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NEW YORK (Reuters) – Eyeing a chance to bear down on its rivals, Xerox (XRX.N) plans to keep up the pace of spending on research and development, even if it means cannibalizing some of its products as customers rethink their choices about office equipment.


Xerox President Ursula Burn is driving engineers at the printing and document management company to come up with ideas such as a new solid ink system ColorQube, whose print heads can jet over 150 million drops of ink per second.


"We are extremely bullish and fairly dogmatic on research and development and how you invest in it during good times and bad. It’s tougher to make a dollar than it’s ever been in my life, but a dollar can still be made," Burn told Reuters in a recent interview.


"We are making sure that we do not damage our infrastructure and our value proposition. That’s why we are still investing in innovation."


Xerox, which reported $17.6 billion in sales in 2008, slightly better than the year before, spends around $1.5 billion on R&D, Burns said. That includes development costs at Fuji Xerox, a joint venture between Xerox and Japan’s Fuji Photo Film Co.


Xerox’s R&D budget — exclusive of Fuji Xerox — has declined in each of the past three years, falling to $883 million in 2008.


But proportionally, the company sees 2009 on par with recent years. At its analyst day in November, CFO Larry Zimmerman pegged 2009 R&D spending at 4-5 percent of revenue. This compares with 4.9 percent in both 2008 and 2007.




After three years of development, Xerox earlier this month introduced ColorQube, which promises to shrink the cost of color printing for high-volume users to 1-3 cents per page, on par with that of black and white printing.


The product line, aimed at users who print 15,000-30,000 pages a month, also creates less waste — a "green" angle that Burns hopes will help lure customers of rivals including Ricoh, Canon (7751.T) and Hewlett-Packard (HPQ.N).


Oddly enough, ColorQube can replace laser printers, those workhorse models found in a multitude of offices — many made by Xerox. Burns says she is not afraid that customers might replace one Xerox machine with another.


"We are more concerned that there is significantly more opportunity to attack our competition," she said. "The best way to grow our business sometimes is to cannibalize our own, or to cannibalize a technology …. It’s a beautiful problem to have. I lose no sleep being in this situation."


The goal of most leading printing and document management companies is to seed the corporate landscape with machines.


While business may be slow due to the economic downturn, the companies that survive will still need to print internal communications, as well as documentation for both current and prospective customers. Color is seen as a way to spur response from those who are targeted.


But Burns, along with Xerox Chief Executive Anne Mulcahy, may be kept awake by the pace that its customers are delaying purchasing decisions. Xerox’ first-quarter earnings report showed a 14 percent decline in color revenue and a slowdown in color page growth.


Research firm IDC, in a statement that praised the advanced technology of ColorQube, noted however that customers who might desire color systems aren’t immune to sticker shock. 


While Xerox’s ColorQube contracts employ a system whereby users pay for the ink used — rather than pages printed — the machines introduced this month range from $21,000 to $26,000.


"Until color hardware prices are nominally higher than black/white laser’s, the adoption curve of color in the office will continue to be evolutionary and not revolutionary," said Angele Boyd, IDC’s research vice president for hardcopy peripherals.


Burns admits the economy is unpredictable, and that even this new printer-and-ink line won’t pack much financial punch this year.


"I wish this product could turn the economy around. But we are not expecting (that)," she said. "We expect that the financial impact of this product in 2009 will be very small primarily because it is the introduction year. But as the machines expand in the field, as the economy gets better, we expect to see a measurable impact."