DELL GETTING FIT FOR PRINT

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DELL GETTING FIT FOR PRINT

 user 2005-10-15 at 11:35:00 am Views: 34
  • #14282

    Dell Getting Fit for Print
    Dell  shares showed
    signs of life Thursday, a day after company executives touted progress
    in the printer market, a relatively recent but significant product push
    for the world’s largest computer company.
    Dell has garnered strong sales momentum, but it continues to operate
    without profit. Dell executives are content to keep growing the
    business at or near break-even, as they count on subsequent sales of
    ink and toner to boost profit.
    But the selling of ink and toner — the printer consumables market –
    is no less competitive and carries with it its own risks and hazards.
    Dell is trying to bring its operational efficiencies to bear on markets
    beyond the PC, where its supply chain and direct-sales approach
    provides it with cost advantages over its competitors. Dell has
    expanded into TVs, digital-music players and data storage, but its most
    significant new frontier is in printers.
    Dell entered the market just over two years ago, and it has quickly
    carved out a double-digit market share for itself, thanks to an
    aggressive pricing strategy that came at the expense of other long-time
    printer companies like Hewlett-Packard  , Xerox and Seiko-Epson.
    Another printing heavyweight, Lexmark  , is a Dell competitor, but
    Dell is also its largest customer
    Most players in the printing business bank on ink and toner to buoy
    performance, which would sag if it depended only on discounted sales of
    printers, so price sensitivity to these consumables is a major concern.
    Dell offers initial deals on consumables when a printer is purchased,
    and also offers a real-time monitoring program that will alert the user
    when supplies are getting low and then directs them to Dell’s Web site.
    The program is designed to get customers hooked early on the
    convenience of Dell’s replenishment service, but it carries risks.
    “A lot of manufacturers are reluctant to discount the way Dell does at
    the beginning because of a fear that the consumer might get used to the
    lower cost of consumables and then get sticker shock when they come
    back,” says Ian Hamilton, senior printer industry analyst with Current
    Analysis.
    Consumables are a key to success for Dell’s printing business,
    accounting for just over 40% of its Dell-branded printer revenue in the
    second quarter. That number has been on the rise, with the company
    predicting consumables would eclipse 50% of overall sales — which
    would be in line with the industry average — by the middle or end of
    next year.
    Analyst Cindy Shaw of Moors and Cabot says Dell won’t be able to
    generate the same operating profits that H-P can because it has to
    split profits with its suppliers, like Lexmark, which hold the actual
    intellectual property behind the replacement parts. Further, she
    speculated that Dell’s price-conscious customers may be more apt to get
    their ink and toner refills from non-Dell affiliated refillers or
    remanufacturers.
    While optimistic that Dell has figured out the printer market, Shaw
    predicts Dell’s printing operating profit will top out in the
    high-single digits while H-P aims for 13% to 15%. Moors and Cabot has
    no banking relationship with Dell.
    Ro Parra, senior vice president of Dell’s Americas business unit, says
    the printer division will begin “shifting its focus to high-value
    categories,” thereby targeting the parts of the printing arena that
    garner the fattest profits, specifically citing color laser printers
    and printers that can perform multiple functions, like scan, copy and
    print.
    These are particularly ripe markets in the corporate space, where fleets of printers are in near constant use.
    Parra says Dell can succeed because it offers cost savings across a
    company’s whole printing fleet, as well as across the lifetime of the
    printers. He cited growing number of sales for orders consisting of
    more than 100 printers as evidence of the company’s success.
    Parra hopes Dell’s printing-share gains mirror its progress in the
    server market, which commands about 35% of the market a decade after
    entering it, and tracked an identical share grab over the course of its
    first three years. Dell shipped 5 million printers in the previous
    fiscal year and Parra said the company is on track to ship between 7
    million and 8 million this fiscal year.
    However, this is still considered the growth part of the printing
    business for Dell — the second of a three-phase plan. The final phase,
    which Dell dubbed “extend,” is designed to capitalize on the customer
    base through the sale of related products and services.
    This could mean trouble for Dell’s competitors as it indicates the
    company is content to operate its printing unit with little or no
    profit. Prices will be kept low in an effort to boost hardware sales,
    which eventually is expected to boost higher-margin ink and toner sales.
    As third-party manufacturers become more savvy about marketing to Dell
    customers, however, Dell may be hard-pressed to reap the profits that
    it has sowed through its heavily discounted printer sales.
    But this isn’t just a Dell problem. Indeed, all printer companies face
    the same issue, in turn creating more price-driven competition for the
    entire industry. Seiko-Epson dropped its financial targets for the next
    six months on Wednesday due partly to reduced demand for inkjet
    consumables and rapidly falling prices for inkjet printers.
    It’s no secret that Dell’s luster has dimmed a bit this year. It is
    struggling to prove that it can grow at the same profitable rates of
    its past, and its hope for future profits from ink and toner might be
    too optimistic, if competitive pressures mount here, as has happened in
    so many other areas of the technology landscape.
    The ink in this well might be drying up.