Thu, Jul 25, 2002 page12

• H-P, Dell battling over printers

  COMPUTER RIVALRY Hewlett-Packard has decided it will no longer supply printers to Dell after Michael Dell said he was considering entering the high-margin business

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  Hewlett-Packard Co, the world's largest personal-computer maker, will no longer sell printers and related gear through Dell Computer Corp, which may start competing with it in those products.

  Dell, the world's second-largest PC maker, is considering selling its own printers, Hewlett-Packard spokeswoman Diane Roncal said. Dell isn't commenting on whether it will enter the printer business, company spokesman Michael Maher said. The revenue loss isn't material, he said.

  Dell Chief Executive Michael Dell has said the PC maker is considering selling its own printers, which are more profitable than computers. Hewlett-Packard's printer division reported an operating profit of US$768 million in its fiscal second quarter while the company's units selling PCs and servers had losses.

  "In an economy like this, why would you turn away any sales? Why would you remove yourself from the direct channel?" said Jim Lyon, who helps invest US$340 million at Oakwood Capital Management. "It's like cutting off your nose to spite your face."

  If Dell customers want Hewlett-Packard printers, Dell will buy those products in the channel, Maher said. "It's just a little harder and more expensive to access those products," he said. "H-P has made it harder for our customers to buy H-P products. That's counterintuitive to us."

  Hewlett-Packard's sales through Dell were equivalent to about a couple of days of annual sales in the printer division, Roncal said, declining to state the exact amount. Hewlett-Packard's imaging and printing systems division last year had sales of US$19.4 billion, according to a regulatory filing.

  The end of the relationship is not material to either company, said John Jacobs, president of Jacobs & Co, which invests US$150 million and holds about 150,000 Hewlett-Packard shares. He thinks the split is a way for Hewlett-Packard to become more aggressive in its battle against Dell.

  "Hewlett-Packard is definitely looking at Dell as one of its primary competitors," said Jacobs.

  Investors and analysts have speculated that Dell would either start selling its own printers, buy a printer company or form an alliance like the one it has to resell storage products from EMC Corp.

  A possible alliance or purchase candidate is Lexmark International Inc, which formerly sold printers through Compaq Computer Corp until the latter was bought by Hewlett-Packard in May. Dell Chief Operating Officer Kevin Rollins earlier this month said a purchase of Lexmark was "highly unlikely."

  "The reality is, Dell only knows what Dell's strategy is," Lexmark CEO Paul Curlander said. "Our strategy is to grow through Lexmark-branded products," not other equipment makers.

  Dell has been contacting printer makers about an alliance, said Vyomesh Joshi, H-P executive vice president for imaging and printing, in an interview last month. Two problems facing Dell are that customers don't like to wait 24 hours to buy ink cartridges as they would have to under Dell's direct distribution system, and Dell can't use the best components to build the printers because they are protected by patents, Joshi said.

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