IS DELL STUCK WITH ITS PRINTING BUSS ?

[Anonymous]

For Better Or Worse, Dell Could Be Stuck With Its Printing Business
IBM
recently looked at the landscape of the printing industry, added up the
numbers and decided to just get out of the printer business altogether.

Hardware
margins are dropping, market patterns are changing and, IBM executives
said, it just didn’t fit in with the company’s long-term strategic
goals.Dell may find itself in the same position as IBM — possibly even
worse because it’s not even clear what, if any, profit Dell has made
from its printer business since jumping in a few years ago — but for
Dell getting out of the business like IBM may not be possible.

I
spoke yesterday with Stewart Krentzman, CEO of Oki Data Americas, a
printer company that is growing in the U.S. Krentzman likened Dell’s
options to his time as a top executive at packaged goods manufacturer
Unilever (maker of products like hand soap and Lipton Tea.) During that
time, he recalled, there were some products that were very profitable
for his company and some that only lost money. Yet he needed all of it
— the good and the bad — to maintain a full product lineup and
maintain a healthy reach into the consumer space.Even if Dell isn’t
seeing a profit from printers, it still needs printers to keep some of
its PC customers happy. For example, Dell sells lots and lots of PCs
and servers to Boeing. But Boeing also needs its printer fleet managed.
So Dell partnered up with Lexmark and put together a print managed
services deal for the aerospace giant that A) keeps it happy and B)
prevents it from signing up Hewlett-Packard for its PCs, servers,
printers and print management.But not every customer is Boeing. A
little more than a year ago, then-Dell CFO James Schneider spoke at the
Raymond James IT Supply Chain conference in New York and admitted the
company made a mistake. It had sold so many printers so cheaply, or
simply given them away for free with PC bundles, that the customers
getting them didn’t value them, need them or use them. The upshot: Dell
dramatically gained market share — to over 5 percent of the total
market in just a couple of years — but a large chunk of its printer
customer base weren’t buying consumables or going back for more
printers.Since last year, Dell has been trying to narrow its printer
product line to higher-margin devices for higher-end enterprises. It’s
hard to tell if that’s been working out, as the company has stopped
reporting detailed financials and has stopped answering questions about
its performance. And it’s not even clear if Dell will stay out of the
low-end printer space for long. (In an email to employees after taking
back the CEO reins, Michael Dell said, “In Consumer, I believe the
dramatic de-scaling is a mistake. We will focus on return on invested
capital (ROIC), cash flow and variable costs. We will have a new
product cycle, we’ll fix (customer experience) and we will not run away
from a cost fight!” Consumer printers were largely the mistake that
Schneider had described.)

But if Dell is getting its clock
cleaned by HP in the notebook space (HP grew notebook sales at 57
percent during the fourth quarter, while Dell grew at 2 percent), its
prospects for competing against HP in the printer business — where HP
is the market share king — would appear to be a challenge.Lexmark,
which is a major printer OEM for Dell, has reported its OEM business
has been under significant pressure since last year. Since Dell
represents about 15 percent of Lexmark’s revenue, the company is a
pretty noteworthy indicator of how Dell’s printing business is doing.
Lexmark has also been a major OEM for IBM, and during Lexmark’s most
recent quarterly conference call with financial analysts, CEO Paul
Curlander declined to say how IBM’s decision to exit the printing
business would impact Lexmark.Dell is Lexmark’s biggest customer, so
whether it remains in the business or gets out like IBM, what is said
in Lexington in the next few months may reflect very closely on what’s
happening in Round Rock.

[Author]

March 12, 2007 at 10:18 AM