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 user 2005-05-16 at 10:11:00 am Views: 59
  • #9673

    H-P plans to strike back at rival Dell
    Company’s lucrative printing franchise facing tough

    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

    The wildly
    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