HP TO STOP SUPPLYING PRINTERS TO DELL

Dell spokesman Mike Maher said the company was surprised by HP’s move.
“We’re
befuddled that the mere possibility of us entering the printer business
would make them so nervous,” Maher said. “It seems counterintuitive
that in this market you would want to make it harder for customers to
get your products.”The move will have no material impact on Dell’s
finances, Maher said. The PC maker, he said, has direct relationships
with Xerox, Lexmark, Canon and Brother, and if customers want HP
printers, Dell will continue to offer them by purchasing them through
the distribution channel.

Dell is still evaluating its options as
far as its own brand of printers is concerned, Maher said. Dell
President Kevin Rollins told the Austin American-Statesman last week
that the company is likely to be in the market by the end of the
year.”My guess is sometime soon, you’ll see us in the printer
business…with a Dell-branded printer. Probably by the end of the year,
you’ll see something,” Rollins said.HP, the world’s largest printer
maker, and Dell, now the No. 2 PC maker behind HP, once enjoyed a fairly
close relationship when it came to printers. Dell was one of HP’s
largest sales outlets, according to sources. HP resellers often
expressed dismay over the relationship because assisting Dell, they
said, potentially cut into their own business.Since the HP-Compaq merger
was announced, however, Dell has increasingly begun to buy printers
from Lexmark and other HP competitors. In a similar fashion, after
Compaq bought Digital in 1998, Dell replaced Digital as its field
service provider.Dell began selling HP products in 1998.

Both PC makers lose
Analysts
say that the relationship between the two companies, while contentious
at times, had offered benefits to both.”Both companies are going to
suffer from this,” said Gary Peterson, director of research for market
researcher ARS. “Dell, like it or not, is a pretty big reseller of HP
products. HP is going to miss that.”At the same time, Peterson said, HP
has been a significant supplier to Dell and noted that it owes a
fraction of its PC sales to the fact that it has been able to bundle HP
printers.”Dell is going to be missing HP a great deal,” he said.It’s too
early to predict how Dell would fare with its printers, said Bear
Stearns analyst Andy Neff.”This is still a war on paper only at this
point–Dell does not have printers yet (and it) needs to detail its
plans and execute those plans,” Neff said in a note to clients.

Merrill
Lynch analyst Steven Milunovich estimated that HP printers sold through
Dell represent approximately 3 percent of HP’s $9 billion in imaging
hardware sales, but said that other partners could quickly make up for
that $300 million in lost sales.

Lucrative ink sales are Dell’s
key motivation for entering the printer market, but Milunovich
questioned whether Dell would be able to persuade consumers to buy
printer cartridges by phone or over the Internet.”The vast majority of
supplies are bought through retail, not over the Web,” Milunovich
said.However, Neff said that it may be premature to count Dell out.”As
to the conventional thinking that ‘no one will buy ink cartridges
direct,’ one could have said the same about PCs 10 years ago,” Neff
said.