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Dell targets overseas printer market

The company takes aim at South Korea and other emerging markets, but likely will have to cope with razor thin margins.

Noting some momentum in its printer sales, Dell said it will use its server strength to muscle its printers into more emerging markets overseas in an effort to unseat Hewlett-Packard as the printer king.

The Round Rock, Texas-based company said it will begin to offer high-value, all-in-one and larger-format color laser printers in the United States and bolster its efforts overseas, especially in South Korea, in 2006.

Dell has shipped about 10 million printers worldwide, mostly in the United States, executives with the company told analysts on Wednesday. That's good enough to be ranked No. 2 in the U.S., behind HP, whose market share ranges from 60 percent in some segments to 90 percent in some high-end categories.

In North America, Dell managed a 13 percent market share for its monochrome laser printers made by Lexmark and 17 percent market share for its color laser printers made by Fuji Xerox. However, Dell ranks eighth worldwide, behind companies such as HP, Samsung, Epson, Oki Data and Xerox.

The new strategy, according to Dell Senior Vice President Ro Parra, is to bolster Dell's presence by offering increased same-day shipping and piggyback the company's printers on top of its server sales.

"As our non-U.S. business is growing, we have a lot of headroom to expand beyond our worldwide 3 percent market share," Parra said during a conference call with analysts.

Dell's international sales force has a high bar to hurdle. About 95 percent of Dell's salespeople have sold laser printers to coincide with either PC or server sales, Parra said.

The company unveiled its all-in-one photo printers, the Dell 924 (priced at $89) and Dell 944 ($149), on Tuesday which the company says offer faster printing speeds and wireless capability alongside new printer software that can help manage a pool of Dell and non-Dell printers.

Dell Vice President Tim Peters told analysts to also expect a new version of Dell's 962--a multifunction printer--before the end of the year.

In all, Dell has 14 different models to choose from and supports sales to more than 40 countries.

But Dell's push for new corporate customers may come back to haunt it in the same way that its quest for PC sales did last quarter.

Ian Hamilton, an analyst at industry research firm Current Analysis, notes that Dell has literally no cost margins for its printer divisions. The Dell 1100 is the only printer Dell has contracted with Samsung to manufacture. The monochrome laser printer costs $89 to produce, not including shipping, and retails for $99.

"Compare that to the Samsung 2010, which is exactly the same printer for the same price after rebate but has more robust features than the printer they make for Dell," Hamilton said.

And while Dell has notable wins in the home office and small- to medium-size markets, Hamilton also notes Dell has faced resistance with larger corporate customers.

"No IT manager has ever lost their job from buying an HP printer," said Hamilton. "No matter how many Dell computers a company may have, people who purchase IT equipment look at HP as a long-standing leader in the printing business. It's a hard thing for Dell to crack, but they're still trying."

Like many other printer makers, Hamilton said, Dell has reverted to seeding the market with free printers to try and drum up support among corporate clients.

"One or two in the back room is all it takes," Hamilton said, noting that Dell promises full service on its printers to give companies a chance to compare the performance.

And like all other printer companies, Hamilton said, ink and toner are more important, ongoing sources of revenue for printer manufacturers, who find they can sell the hardware at a discount and then more than make up for it later on in supply sales.

Dell said its ink and toner sales (also known as consumables) make up 42 percent of its Dell-branded printer revenue. Sales of the after-market products have increased year over year, Dell's Parra said, by as much as 152 percent since they started selling the products three years ago.

With the average purchase being three ink cartridges per order after point of sale, Dell said it is counting on its direct sales and shipping model to help increase sales of its cartridges.

"Nobody likes going into an office supply store to purchase cartridges," Hamilton said.

Dell's ink-cartridge cash cow could also be at risk, Hamilton said. Even though Dell recycles its own cartridges on most printers it sells in United States and Europe, several companies offer refilling services. Office Depot has even begun to sell its own Dell-branded ink toner, which cuts directly into Dell's profits, the analyst said.

"I expect Dell to limit the number of printer promotions that it does online to help balance the cost," Hamilton said.