HP ends alliance as Dell enters printer business

By Peter Henderson

SAN FRANCISCO: Hewlett-Packard Co., the No. 1 printer and personal computer maker, said rival Dell Computer Corp. would launch its own brand of printers and that HP in response to that, would quit selling its products to Dell.

Dell has said it wants to get into the printer business, probably this year, but has not said how it will do that. A spokesman on Tuesday declined to comment on whether a printer deal is imminent, saying Dell was surprised by HP's move.

Analysts have said Dell could aim to take a piece of the lucrative market for printer supplies or simply launch a price war in a bid to destabilize the most profitable unit of HP, which became the No. 1 PC seller by buying Compaq in May. "Dell is trying to take a shot at HP's core business," said Bear Stearns analyst Andrew Neff.

No. 2 U.S. printer maker Lexmark International Inc., seen as a potential Dell partner, repeatedly shook off questions about a Dell deal during a conference call on Monday. A Lexmark spokesman declined to comment on Tuesday about a possible link-up with Dell.

Shares of HP and Dell dropped about 4 percent each, with HP down to $11.52 on the New York Stock Exchange and Dell down to $22.74 on Nasdaq, and Lexmark rose about 4 percent to $46.81 on the New York Stock Exchange.

"We had a reseller relationship with Dell and we concluded that the basis for partnership is no longer valid given the company's intent to sell Dell-branded printers," HP spokeswoman Diane Roncal said.

Dell ‘surprised’ at HP move.

Dell spokesman Mike Maher said his company would still sell HP branded printers that it purchases through distributors, but expressed dismay at HP's decision. "Frankly we're surprised that a company would make it harder for customers to get their hands on their products," he said.

HP's Roncal said Dell's share of HP printer sales was insignificant, amounting to about two days' worth of HP annual printer sales, and other resellers had already agreed contracts to make up for the Dell volumes. Dell is known for moving commodity products quickly, but the printer business is slightly different, analysts say.

Printers generally include sophisticated technology that Dell could not easily duplicate, while ink, unlike computers, does not lose value sitting on a shelf. Printer profits also depend on sales of ink, since the printers themselves are often sold at a loss, and HP believes consumers prefer to buy ink from retailers rather than online, where Dell has had the biggest impact on the PC market.

"There are a whole number of reasons why this is somewhat unlike other markets that Dell has threatened to commoditize over the years. Among other things, arguably the largest portion of intellectual property belongs to HP," said S.G. Cowen analyst Richard Chu.

© Reuters