In 1969 high-flying Xerox Corp. was so anxious to get into the computer business that it paid more than $950 million in stock to buy Scientific Data Systems, a California-based mainframe maker. Now the copying-machine giant is just as anxious to get out; last week it announced that it would stop making basic computers over the next year or so, thus joining the list of corporate giants that have failed to dent the computer market dominated by IBM (others: General Electric, RCA). Xerox deducted from second-quarter earnings $84.4 million in estimated costs for discontinuing the computer business, reducing its net for the period to a mere $4.2 million, down more than 95% from a year earlier.
Getting into computers looked like a good move at the time. Xerox was then diversifying into a wide range of products for its "office of the future," for which computers will be a key, and S.D.S. had maintained a 50% annual growth rate for about four years. Even so, some Wall Street analysts have long believed that Xerox paid far too much; one says S.D.S. "maybe was worth one-quarter or one-eighth" of Xerox's outlay to buy it.
In any case, S.D.S.'s main business —high-technology Government contracts—went sour shortly after Xerox took over the company. S.D.S. never captured more than 1% of the mainframe computer business, and recently it has been losing $44 million a year. A Xerox study concluded that it would not be profitable until 1980, and the company decided that it could not wait that long. It can rent computers for the "office of the future" system more cheaply than making them. Also the recession is cutting into profits from Xerox's basic business (copiers). A Xerox statement last week even predicted a "moderate decline" this year in profits from continuing operations.