Dell to Compete with Hewlett-Packard on Printers, Ink Refills
Sep 25, 2002 (San Jose Mercury News - Knight Ridder/Tribune Business News via COMTEX) -- Dell Computer announced Tuesday that it will soon start selling printers and ink refills under its own brand name -- a direct attack on Hewlett-Packard's lucrative printer empire.
Dell, the No. 2 maker of personal computers behind HP, will immediately begin offering printers made by Lexmark International with its holiday computer packages. Early next year, Dell will begin selling Lexmark-made printers and ink cartridges under its own brand name.
Consumers could end up as big winners. Dell likely will undercut the competition by slashing prices, much like it did with personal computers, and HP and other printer makers like Canon and Epson will probably be forced to respond.
Right now, about 90 percent of inkjet and laser printers -- and the expensive ink and toner refills to keep them going -- are sold in retail stores, where HP is a powerhouse.
Dell, a master of efficiently building and selling PCs to consumers by mail, telephone and Internet, hopes to apply the same successful model to printers. But analysts said it will be an uphill battle to convince consumers to buy printers and ink over the Internet.
"I don't see a huge revolution where people are running to the Net to buy everything," said Peter Grant, an industry analyst with Gartner Dataquest. "Buying patterns are set. Behaviors are set. And Dell will have to start chipping away at that.
"Dell's move into printers is part of a broader effort by the Round Rock, Texas, computer maker to expand beyond PCs into related products, including monitors, network equipment and computer servers.
For HP, every lost sale of a printer or ink cartridge directly affects the bottom line. Although the Palo Alto computer giant competes in many lines of business, from servers to technology consulting, the company relies on sales of printers and ink refills for the bulk of its profit.
While not ceding ground in low-end consumer printers, HP is focusing more effort on higher-end machines, such as a new line of sub-$1,000 color laser printers aimed at business customers that was rolled out this week.
"Dell is going to face unique challenges that are not easily overcome," said HP spokeswoman Diane Roncal. "We understand that industry growth will be fueled by transformation plays in digital imaging, digital publishing and commercial services -- areas where Dell does not have capabilities."
Merrill Lynch analyst Shannon Cross said the agreement is a positive for Lexmark, which lost its manufacturing contract with Compaq Computer shortly before the HP-Compaq merger. Sales will rise, although Lexmark's net income could take a short-term hit as it sells the printers to Dell at a loss and waits for refill cartridge sales to bring in profit.
Dell wouldn't discuss pricing of its printers, nor would it discuss specifics of the agreement or printer products.
But Dell did say the agreement would be implemented in two phases.
The first phase will see Lexmark-branded printers pushed through Dell's holiday promotional packages. The second, which won't happen until after Jan. 1, will put Dell's brand name on Lexmark printers and ink cartridges for sale through Dell's direct sales channel.
"We've demonstrated quite well that the consumers will purchase products through a direct model," said Dell spokesman Jess Blackburn. "Our experience in providing what we feel is a very positive customer experience will translate to the printer business, as well."
Because the agreement is non-exclusive, Dell can continue selling printers made by other companies -- except for those made by HP or Canon.
In July, HP announced that it would cease sales of printers and other imaging products to Dell amid rumors that Dell would enter the printer business. Likewise, Canon said last month that it would not supply printers to Dell.
Since then, Dell also has been cut off by other Silicon Valley partners, including network equipment makers 3Com and Cisco Systems, which are upset that Dell has increasingly moved to compete directly with their product lines.
Dell, while not known for technical innovation, has led the industry in building and marketing PCs cheaply and profitably.
Last month, it announced an improved second-quarter profit and an increase in product shipments at a time when other computer makers have been stuck in a serious slump.
"Clearly, we're winning and gaining market share," Michael S. Dell, the company's chairman and chief executive officer, said at the time.
By Sam Diaz To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to bayarea.com
(c) 2002, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News. |
