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Dell’s deal to sell Cisco switches ends

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CIOL Bureau
New Update

By Caroline Humer



NEW YORK : Dell Computer Corp. said that it will stop reselling Cisco products as Dell considers delving further into its market. Dell's break with Cisco comes less than two months after printer industry heavyweight Hewlett-Packard Co. said it would stop selling its printers to Dell for resale, citing Dell's plans to move into the printer market.



Round Rock, Texas-based Dell is the No. 2 personal computer company behind HP, but as the PC market contracts Dell has begun pushing into new areas. In addition to its nascent networking business -- it began selling a Dell-branded networking switch one year ago -- the company has said it plans to start selling its own computer printers, handheld computers and so-called "white box," or unbranded, computers.



Dell spokeswoman Mary Fad said Cisco informed it in mid-August that it would discontinue its reseller agreement as of Sept. 27, but didn't provide a reason. The agreement has been in place for at least five years. San Jose, California-based Cisco, the No. 1 networking equipment company, confirmed the relationship was over, but declined to give a reason.



"We do not comment on specific details regarding our business relationships with Cisco channel partners, but we will confirm that effective Sept. 27 Dell will no longer be a Cisco-authorized reseller," Cisco spokeswoman Melissa Kendrick said. "To help ensure a smooth customer transition...Dell will be able to sell product until the end of October."



Networking equipment is used to connect the pieces of everything from corporate networks to the Internet. Dell has said it is considering selling Dell networking products, such as routers and switches that are used in the center of networks, and that would compete with Cisco, Fad said.



"Those are areas that we are looking into and we haven't announced any products in those areas. We haven't given a time frame for when we might announce products," Fad said. Cisco's move may be an indication of just how serious Dell is about the networking business, said CIBC World Markets analyst Steve Kamman.



"It's a market right now where the margins are very high and the price point is high enough where Dell can probably come in with its very low cost manufacturing strategy and might be able to make a pretty solid impact," Kamman said. Dell's Fad said that Cisco's move would have no material impact on Dell.



Merrill Lynch analyst Steve Fortuna agreed, saying that the networking business is an insignificant part of Dell's total revenues, which were $31 billion in 2001.



"It's not one of the investment legs in our thesis because it's too nascent right now, but to the extent that areas of technology commoditize, as certain areas of networking have, Dell believes that it can get better margins by building their own versus reselling," said Fortuna, who rates Dell a "buy." "They did this with Layer 2 switches, they plan to do it with Layer 3 switches," he said.



Layer 2 switches, as they are called, are used on the edge of computer networks while Layer 3 switches are used in the core of the network, where Cisco is the dominant player. Shares of Dell closed up 12 cents, or 0.5 percent, at $26.22 on Monday on Nasdaq.





© Reuters

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