HP PLANS TO STRIKE BACK @ RIVAL DELL
HP PLANS TO STRIKE BACK @ RIVAL DELL
2005-05-16 at 10:11:00 am #9673
H-P plans to strike back at rival Dell
Company’s lucrative printing franchise facing tough
SAN FRANCISCO –
Vyomesh Joshi, the undisputed heavyweight of the global printer industry, was in
an assertive mood this week as he discussed Hewlett-Packard’s plans to fend off
The head of H-P’s
printing unit confidently told a group of analysts that innovative products,
reallocating resources and recently announced job cuts would enable H-P to
strike back at competitors from a position of strength.
But there was one
competitor in particular looming large at the analyst meeting. Above all,
analysts wanted to know how H-P planned to compete with Dell, the giant PC maker
that has set its sights on H-P’s lucrative printing franchise.
“Dell is going to
be a formidable competitor in the U.S. printing market,” says Peter Grant,
analyst at Gartner.
Observers got a
hint of Dell’s disruptive potential a few months ago when H-P’s printer unit
reported less than stellar first-quarter results. Sales within the company’s
leading business unit rose a mere 2.7 percent, while operating margin fell from
16.4 percent to 15.4 percent. Even worse, H-P said it would have to resort to
price cuts to regain market share.
This was not
Joshi’s vision for the $24 billion-a-year printing division whose powerful brand
and innovative products dominate most markets in which it competes.
But a number of factors are combining to put the squeeze on H-P’s
crown jewel. The U.S. printer market is maturing most personal computer owners
already have printers and rivals such as Epson, Lexmark and Canon are moving
aggressively to cut prices.
More significant is
Dell, which has taken advantage of its direct sales business model to sell
printers in an attempt to chip away at H-P’s lucrative ink supplies business.
Dell’s printer foray has grown from nothing a few years ago into a business with
more than $1 billion in sales.
H-P is also
competing against a growing number of so-called ink “remanufacturers” that sell
refilled ink cartridges at a discount to the prices H-P charges for new
supplies. H-P, which reports second quarter earnings on Tuesday, can ill-afford
to let competitors chip away at its lucrative printing profits, which accounted
for about three-quarters of the company’s total $4.2 billion profit in 2004,
even though the printer group brought in less than one-third of its $80 billion
profitable printer business has helped prop up other units in the company,
particularly PCs and the troubled corporate computer and storage
Joshi has moved
quickly to respond to the challenges. H-P began offering price rebates on its
popular inkjet printers and this month announced that 1,900 workers had taken
voluntary severance packages as part of a larger effort to trim fat and
reallocate resources to low-cost countries such as Malaysia. Joshi declined to
discuss whether H-P could make additional cuts.
H-P this week unveiled a line-up of laser and
inkjet color printers aimed at small and medium-size businesses, with a
promise for further launches throughout the year.
H-P is confident
that despite price competition, its ability to innovate gives it a significant
edge over rivals such as Dell, which relies on partners to supply intellectual
But not all analysts are convinced. Angele Boyd of research group
IDC argues that price remains the key factor in the consumer and small business
market, which accounts for about two-thirds of H-P’s printer and supplies sales.
“Innovation is important but price is more important and Dell has a powerful
model,” she says.
Dell has made solid
progress with its inkjet printers, which have captured roughly 15 percent of the
U.S. market, and is now targeting laser printers with prices up to half what H-P
charges for similar products.
Joshi retorts that
Dell’s printer business is tiny compared with H-P’s and is barely breaking even
selling printers and supplies to consumers and small companies.
Although Dell has
made impressive headway, it must learn how to sell printers independently of PCs
and to push into the corporate market, where H-P dominates and innovation
No one is writing
off the champ at this point. Grant says H-P has a powerful brand and the
experience to adapt to Dell’s aggressive pricing tactics. The key challenge for
H-P’s printer unit will be to get back into fighting