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Dell Makes Its Move Into Printer Market

After months of speculation, Dell Computer finally made its move into the lucrative printer market Tuesday, inking an agreement with Lexmark to produce Dell printers and setting up a battle with HP for supremacy in the printer market.

The agreement with Lexmark, the No. 2 printer manufacturer, calls for the company to develop and produce Dell inkjet and laser printers, along with peripherals. The printers will be sold to customers using Dell's vaunted direct-sales model, beginning in the first half of 2003.

Dell spokesman Jess Blackburn said the company would continue to offer non-Dell printers. "We're going to be entering the market at a certain level and building on that family," he said. "We're not going to have all printers to meet all needs for all customers from day one."

Before Lexmark-made Dell printers roll out in 2003, the agreement calls for Lexmark to be the preferred supplier of non-Dell imaging products. Dell currently sells printers made by HP, Cannon and Epson, in addition to those from Lexmark.

Under the agreement, Dell and Lexmark will work jointly on product development, manufacturing and sales of the new printer products, with an eye toward building on the successes Dell has found in the computer market.

Terms of the agreement were not disclosed.

"This is a very measured step by Dell to minimize risk," said Gartner Group analyst Peter Grant. "It's very conservative, very measured and very rational."

Dell's entry into the printer market was long anticipated. In a warning shot, HP terminated the its reseller agreement with Dell in July on the grounds that Dell was a likely competitor.

According to Gartner Dataquest, HP holds a wide lead in the nearly $6 billion printer market, capturing 48 percent of all sales in the first quarter of 2002, followed by Lexmark (19.5 percent), Epson (18 percent), and Canon (6 percent). Compared to the first quarter last year, printer units shipped dropped 4 percent to just over 5 million, according to Gartner Dataquest

HP's move to end the reseller deal, while mostly symbolic, was seen as an indication of the seriousness HP takes a challenge from Dell. Later, an HP executive criticized Dell's strategy for selling ink-jet cartridges over the Web as flawed.

"Dell is going to face unique challenges that are not easily overcome," HP spokeswoman Diane Roncal said after the announcement. "HP has a solid strategy. We are successfully executing on it, and we're more convinced than ever that our strategy is right."

Industry analysts agree that Dell faces a steep learning curve in competing with such a well-entrenched rival.

"PC makers entering the printer market have had a tough time," IDC analyst Claudio Checchia told internetnews.com. "Dell is going to move products, but the extent of what they can really do remains to be seen."

Dell has been one of the few bright spots in an otherwise bleak tech landscape. Research by Gartner Group showed PC sales remaining stagnant in the first quarter, but Dell saw its market share grow from 13.1 percent to 14.9 percent compared to the same period a year earlier. Meanwhile, Dell has reported surging profits while other PC manufacturers struggle with anemic corporate demand for upgrades and cautious consumer sentiment in a down economy.

The printer business is attractive for the predictable annuities stream it provides, as companies buy ink cartridges and other supplies. However, Grant pointed out this part of the business still has a strong presence in retail stores, which Dell will attempt to overturn with its Web approach.

"If they're not going to do anything in retail, then they're going to try to change the model," Grant said. "They're the ones to lead the way."

Still, Blackburn said the printer business will remain a sidelight to Dell's core computer business.

"We're realistic," he said. "We don't anticipate printers being a substantial part of the Dell business."