A Printer War’s First Shot?

In a move that could herald the beginning of a printer war, HP said it would end its agreement for Dell to
sell its printers, in retaliation for Dell’s anticipated foray into the
printer business.

“We’re always evaluating our reseller relationships,” said HP spokeswoman Dianne Roncal. “We concluded that the basis for the partnership is no longer valid given Dell’s plan to move from a multi-vendor strategy to a Dell-branded approach.”

Dell has long hinted that it would like to
expand its direct-sales expertise into the printer market, although it has yet to announce any specific plans.

Dell spokesman Mike Maher said HP’s move to end its reseller relationship with Dell would have
little impact on either company’s customers or its bottom and top lines. He
said Dell would continue to sell HP printers, but would need to go through
distributors.

“We sell a variety of printers from other companies,” he said. “If our
customers want an HP product, we’ll still be able to get an HP product.”

Dell sells printers made by HP and other top manufacturers, including
Lexmark, Epson and Canon.

HP officials were unavailable for comment, but a spokeswoman told Reuters
Dell’s reseller agreement was “no longer valid” in light of Dell’s intent to
sell its own printers.

“[HP] is just playing a defensive strategy,” said Gartner analyst Peter
Grant. “They’re saying, if these rumors are true and you’re going to compete
with me, you can buy through distribution.”

Maher warned HP’s decision could backfire, since Dell is the world’s top
direct-sale computer vendor.

“It just seems counterintuitive that part in this current environment a
company would make it hard for customers to get their products,” he said.

For Dell, its long-rumored entry into the lucrative printer market could
help the company guard against persistently sluggish PC sales. Last year,
Gartner Dataquest estimates the U.S. printer market was worth $5.9 billion,
which it expects to fall slightly this year, to $5.8 billion.

More important, said Grant, a printer business would give Dell an annuities
stream from the sale of supplies, like ink cartridges. Yet he warns that
entering the already mature printer business is a difficult task,
particularly since the retail side of the business is so important.

“The model for selling printers is different from PCs,” he said. “Dell would
have to change the model.”

According to Gartner Dataquest, HP maintains a large lead in the 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

While Dell’s sales have held up well in the face of a prolonged slump in IT
spending, the company could benefit from the consistent revenue streams of
the printer business, Grant said.

Last week, Dell President Kevin Rollins said he does not expect the
corporate PC segment to turn around this year, but he said the company was
gaining market share against HP, which is continuing to consolidate its
operations in the aftermath of its drawn-out
$18.4-billion merger with Compaq.

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