Growth Opportunities:

Ursula BurnsPresident, Business Group Operations

The New Business of Printing

andColor

Today’s Discussion

Color

• Market Opportunities

• Market Trends

• Xerox Differentiators

• Customer Successes

Color Leadership

Winning in Color requires:Winning in Color requires:

¨ Market understanding

¨ Technology leadership

¨ World-class partners

¨ Broad and innovative product portfolio

¨ Channels that optimize value and reach

Source: Xerox Internal Analysis

$112B

2004

Lead the Services Market

Drive the Color Revolution

Create the New Business of Printing

Growth Opportunities

Market Opportunity

Color Opportunities

Services$20B

EligibleOffset$17B

EligibleOffset$17B

Production$8B

Production$8B

Office$67BOffice$67B

Color $10BColor $10BB&W $7BB&W $7B

Color $17BColor $17B

B&W $58BB&W $58B

Color Market Growth Drivers

• Offset transfer• Market and application

development• Mono to color transition

• Increasing use of color in business applications

• Improving ease of use

• Lower color run costs

Source: Xerox Internal Analysis

2004 2009

$10B

$17B

$11B

$34B

OfficeOffice

OfficeOffice

EligibleOffset

EligibleOffset

ProductionProduction

OfficeOffice

EligibleOffset

EligibleOffset

ProductionProduction

Key Drivers:

Color Market Growth Dynamics – Pages

• Color page opportunity is huge

• In 2004 approximately 3 trillion total pages in market, excluding Eligible Offset

• Only 5% of 2004 pages were color

• Color page growth rate is accelerating

• Color pages projected to grow to 17% of total pages in 2009

Color Pages % ofTotal Pages

Source: Xerox Internal Analysis; consists of Production and Offi ce pages

17%

9%

5%

0%

5%

10%

15%

20%

2004 2006 2009

Color Market Growth Dynamics

TotalColor

TotalColor

EligibleOffset

1.8M

$17B

$10B

A3A3 A4A4

• Majority of activityin page printers

• Majority of revenuein 11+ ppm A3 MFD

• Eligible Offset is incremental opportunity

2004 Color Revenue

2004 Color Installs

Source: Xerox Internal Analysis

PagePrinters

1.5M

1-10ppm

11-20 21-30 31-40 41-59 60+ or> $150K

PagePrinters

1-10ppm

11-20 21-30 31-40 41-59 60+ or> $150K

Color Copiers / MFDs

$5.6B

Xerox Focus in the Market…

• Color growing in installs, revenueand pages

• We will aggressively compete in A4 and lead in A3

• Our sweet spots:• 11+ ppm A3 MFDs• Production color• Eligible Offset

…lead in color page and color revenue shareSource: Xerox Internal Analysis

5.8M

$34B

$10B

Total Color

1.8M

$17B

2004 2009

4.7M

PagePrinters

1-10ppm

11-20 21-30 31-40 41-59 60+ or> $150K

PagePrinters

1-10ppm

11-20 21-30 31-40 41-59 60+ or> $150K

$11B

Eligible OffsetTotal Color20092004 20042009

A3A3 A4A4

2009 Color Revenue

2009 Color Installs

Color Copiers / MFDs

$10.6B

Differentiators: Technology

• R&D aligned with strategic planks

• Customer-driven research• $1.5 billion total (Xerox and Fuji

Xerox) in 2004• 2/3 in color in 2004 – ramping up

services and workflow

• Rich patent portfolio• Over 500 new patents in 2004• 8,000 active patents

Xerox CoreTechnologyStrengths

Rich Patent Portfolio

Rich Patent Portfolio

Customer-Driven Research

Strategic Planks• Production• Office• Services

Xerox CoreTechnologyStrengths

Core Technology StrengthsSolid Ink• Proprietary• Superior reliability• Exceptional ease of use• Scalable

EA Toner• Less of everything• Cost effective• Environmentally friendly

Image on Image (IOI)• Unmatched performance and

quality at very high speeds

Paper Handling• Robust capability• 50 to 350 GSM• Continuous & cut sheet

Document Management• World-class controllers• Productivity enablers• Business process expertise

Rich Patent Portfolio

Rich Patent Portfolio

Customer-Driven Research

Strategic Planks• Production• Office• Services

Xerox Core Technology Strengths

Rich Patent Portfolio

Rich Patent Portfolio

Customer-Driven Research

Best and Broadest Color

Portfolio

Best and Broadest Color

Portfolio

Strategic Planks• Production• Office• Services

Xerox CoreTechnology Strengths

• Solid Ink• EA Toner• Image on Image • Paper Handling • Document Mgmt.

iGen3®iGen3®

iGen3 110

iGen3 110 with UV Coater

Steady Stream of Value-Added Services Offerings

Col

orDifferentiators: Best & Broadest Color Portfolio

Softw

are

Office Production

Solid Ink Color Laser MFD DocuColor®DocuColor®

DC6060

DC8000

DC5252

DC7000

DC3535

WorkCentreM24

Phaser 8400

WorkCentre®

C2424

Phaser 8500 / 8550

Phaser6300

Phaser6350

Phaser 7750 Phaser EX7750

Phaser6120

Phaser®

7400

Laser Printer

DC240 / 250

DC12

CopyCentre® 3545, 2636, 2128

WCP3545, 2636, 2128

Manual and Book Factory

Differentiators: DocuColor 240 / 250…

• MFD introduced mid-year

• Provides fast, flexible, reliableand affordable color

• Superior image quality

• For graphic communications, demanding office environmentsand central reproduction centers

• Outstanding face-off to Konica Minolta

…will take share in color

Xerox Core Technology Strengths

World-Class Software and

Hardware Partners

World-Class Software and

Hardware Partners

Rich Patent Portfolio

Rich Patent Portfolio

Customer-Driven Research

Best and Broadest Color

Portfolio

Best and Broadest Color

Portfolio

Strategic Planks• Production• Office• Services

Xerox CoreTechnology Strengths

• Solid Ink• EA Toner• Image on Image • Paper Handling • Document Mgmt.

Differentiators: World Class Partnerships

• R&D – Fuji Xerox• Manufacturing – Flextronics• Workflow – Adobe, EFI, XMPie, Creo, others• Finishing – Bourg, others• Integrated solutions – OmTool, Kofax, Equitrac, others• Channels

Role of Partnerships

Leadership

Xerox Core Technology Strengths…

Broad, Coordinated

Channels

Broad, Coordinated

Channels

…enable color leadership

World-Class Software and

Hardware Partners

World-Class Software and

Hardware Partners

Rich Patent Portfolio

Rich Patent Portfolio

Customer-Driven Research

Best and Broadest Color

Portfolio

Best and Broadest Color

Portfolio

Strategic Planks• Production• Office• Services

Xerox CoreTechnology Strengths

• Solid Ink• EA Toner• Image on Image • Paper Handling • Document Mgmt.

Source: Xerox Internal Analysis

Differentiators: Broad Go-to-Market Strategies

$112B Market Opportunity

LargeEnterprises

$46B

LargeEnterprises

$46B

GraphicCommunications

$25B

Small / MediumBusinesses

$41B

Small / MediumBusinesses

$41BLarge Enterprises• Services-led• Global account

relationships• Account intimacy• Enterprise productivity

focused

Graphic Communications• Dedicated industry

experts• Complementary

channels• Fully integrated

solutions

Small / Medium Businesses• Direct and indirect

channels• Xerox and third-party

branded products• Channel-ready products

and solutions

Xerox Solution• CopyCentre 2636 – provided convenience

color, ease of use, customer control• DocuColor 250 – in-store quality, speed

and productivity• DocuColor 8000 – POD, high-volume

production applications

Customer Value• Xerox enabled OfficeMax to be single

supplier with multiple solutions for its customers

• Replaced convenience mono devices with Xerox color capable – providing mono and color with one device

• Xerox DC250 increases capacity from 12-ppm to 50-ppm color

• Xerox DC8000 provides near offset quality

Office & Production Color – Customer Success

"From a product standpoint, color printing and copying is our top priority because it represents an opportunity to serve our business customers' growing needs. Xerox is helping us make high-quality color accessible and easy to use for all of our customers."

Brian Norris, Senior Vice President, Print and Document Services

Xerox Solution• 24 iGen3 Digital Production Presses• Centralized credit card statement

billing for 44 credit card companies

Customer Value• Approximately 9 million impressions

per month• Solid business partnership

Production Color – Customer Success

JAIS — Sumitomo Bank, Japan

¨ Market understanding

¨ Technology leadership

¨ World-class partners

¨ Broad and innovative product portfolio

¨ Channels that optimize value and reach

Summary

We will win in Color because we have:We will win in Color because we have:

þ Market understanding

þ Technology leadership

þ World-class partners

þ Broad and innovative product portfolio

þ Channels that optimize value and reach

Today’s Discussion

The New Business of Printing®

• Market Opportunities

• Market Trends

• Xerox Differentiators

• Customer Successes

The New Business of Printing Strategy

Complement traditional offsetwith digital printing capabilities

• Provide the industry’s broadest, most advanced product portfolio

• Strengthen our leadership position in monochrome and color

• Leverage the power of FreeFlow• Streamline customer print operations

and create new business opportunities

Lead the Services Market

Drive the Color Revolution

Create the New Business of Printing

Growth Opportunities

$112B

2004

Services$20B

EligibleOffset$17B

EligibleOffset$17B

Production$8B

Production$8B

Office$67B

The New Business of Printing Major Trends

*The NAPL 2004 – 2005 State of the Industry Report, National Association for Printing Leadership, Paramus, N.J.

“Timely delivery of customer communications is the #1 concern

among industry print buyers.”

Turnaround Times Most Important!Turnaround Times Most Important!

“Over 48% of printers citeshorter run lengths.”

Source: NAPL*

“Digital printing presses/systems were the #1 investment priority - 58% over

the next 5 years.”

Digital Investments Important!Digital Investments Important!

Source: NAPL*

“Enabled 28% price premium.”

Variable Content Creating Growth!Variable Content Creating Growth!

Source: InfoTrends / CAP Ventures - June 04

“Digital printing revenue to double to 14% from 2004 to 2007 as a % of

printer’s total revenue.”

Digital Printing Growing!Digital Printing Growing!

Source: NAPL*

Source: EDSF 2005 Trends Survey

Run Lengths are Getting Shorter!Run Lengths are Getting Shorter!

• Marketing Managers• HR Managers• Book Publishers• MIS Managers• Business Owners

DEMAND GENERATORS

• Lower costs• Higher response rates• Quick turnaround

The New Business of Printing Value Chain…

Value Chain Requirements• New sources of

revenue and profit

DEMAND FULFILLERS

• Commercial Printers• Service Bureaus• Direct Mail Printers• Book Printers• Quick & Franchise Printers• Data centers• In-Plant/CRDs

…requires the Right Technology, Right Workflow, Right Value Proposition

• Graphic Design• Advertising Agencies• Corporate Design• Commercial Photography

• Increase value addfor customers

• Personalization

DEMAND SPECIFIERS

MonoColorColor

XeroxNuveraTMiGen3iGen3

DocuColorDocuColor 4110TM

DocuTech®

HLC

Differentiators: The Right Technology…

Benchmark image quality

Outstanding application breadth

Maximum uptime

Productivity – for the customer and for Xerox

…provides competitive advantage and customer value

DEMAND GENERATORS DEMAND FULFILLERSDEMAND SPECIFIERS

Differentiators: The Right Workflow…

Source: InfoTrends/CAP Ventures – January 2005

“FreeFlow helps customers reduce production costs and improve efficiency by streamlining workflow – a key strategy that drives profitable business for printers.”

Customer convenienceand turnaround time

Variable data to create personalized communication

Automatic correction of print file problems

before printing

Xerox FreeFlow Enables

…reduces costs and increases productivity across the value chain

Differentiators: The Right Value Proposition…

“(Xerox has)…the most comprehensive program in the industry”

• Providing tools and resources for Demand Fulfillers to create new and profitable business opportunities:

• Educating Demand Generators on value of digital:“This campaign accomplished what I was tryingto do better than anything I’ve done in the past.”

• Educating and training Demand Specifiers on how to design for digital:“… Xerox provided a platform for discussion and the exchange

of information and ideas that could help us all do better,more effective work.”

…increases customer revenue and profits

Doris Brown, Vice President, Marketing, Pantone, Inc.

Doug Campbell, Creative Specialist, New York Life Insurance Co.

Mike Pannagio, Direct Mail Express

DEMAND GENERATORS DEMAND FULFILLERSDEMAND SPECIFIERS

Market Development Business Development

Business Development

Business Development

MonoColorColor

WorkflowWorkflow

iGen3iGen3

DocuColorDocuColor

The Right Technology, Workflow, Value Proposition

…make Xerox the leader in the New Business of Printing

and the Right Business Partners…

XeroxNuvera

4110

DocuTech HLC

Xerox Solution• iGen3 Digital Production Presses• DocuTech, DocuPrint Continuous Feed

and Xerox Nuvera Production System• Xerox FreeFlow – workflow solutions

Customer ResultsWith Freeflow we are:• Improving turnaround time from 7 days

to 1 day• Growing from 100s of book titles to 1000s

of titles• Growing from 1.5B pages per year to 5B

pages per year

New Business of Printing – Customer Success

“When you look at digital technology and the way the digital world will continue to evolve, it is clear there are great opportunities before us.”

Joe MakarewiczExecutive Vice President

Xerox Solution• iGen3 Digital Production Presses• Xerox Nuvera Digital Production Systems

Customer Results• Created web-based business unit –

MyPhotoFun• Allows customer to arrange digital

photos into high quality bound albumsand calendars

• Print volume doubled in each of first few months of operations leading to the installation of a third iGen3 DigitalProduction Press

New Business of Printing – Customer Success

“We’re filling a huge demandin the marketplace and driving very profitable growth for TED Gigaprint and our partners.”

Tico van der LindenSales Director,

MyPhotoFun

Xerox is the Leader in the New Business of Printing

ü Over 16,000 DocuColor family sold to-dateüOver 800 iGen3s sold to-date

ü10 billion Production Color pages expected in 2005ü> 3 billion pages to date on iGen3 - unmatched

combination of page volume and performance

ü Over 16,000 DocuColor family sold to-dateüOver 800 iGen3s sold to-date

ü10 billion Production Color pages expected in 2005ü> 3 billion pages to date on iGen3 - unmatched

combination of page volume and performance

Market Share Data as of 1H05 for US and Europe combinedSources: IDC Webtracker 9-16-05; Infosource for Europe, Xerox Internal Analysis

“The iGen3 looks like offset printing – but you be the judge. The iGen3 is in a league of its own. The results show Xerox color science and engineering deliver key technical breakthroughs in a field Xerox invented.”

Henry Freedman, Technology Watch Sept 9, 2005

“It’s no exaggeration that Xerox is the king of high-end cut sheet printers.”

Jon Bees, Better Buys for BusinessJune 2005

“Xerox greatly upped the ante with its iGen3 –a digital machine in a class by itself.”

Graphic Arts Monthly, 2005

Total Color revenue shareMono 91+ high-end cut sheet

High-end Color 60+ppm 41+ppm Color

Total Color revenue shareMono 91+ high-end cut sheet

High-end Color 60+ppm 41+ppm Color

#1

#1

#1

#2

Summary

We will continue to lead the New Business of Printing by:We will continue to lead the New Business of Printing by:

¨ Focusing on the entire value chain

¨ Offering the most comprehensive set of products and solutions

¨ Providing the Right Technology, Right Workflow and Right Value Proposition

þ Focusing on the entire value chain

þ Offering the most comprehensive set of products and solutions

þ Providing the Right Technology, Right Workflow and Right Value Proposition