Dell to move away from HP printer sales

Dell Chief Executive Michael Dell said Monday that his company is increasingly emphasizing other brands of printers in its sales efforts.

"We have moved over the last year or two toward Lexmark International Group and some of the Japanese printer manufacturers, and I would expect that to continue," he said during a speech at the Lehman Brothers Semiconductor Conference in San Francisco.

In the hour-long presentation, Dell also said that PC sales should pick up by spring 2002 if the economy cooperates and that corporate America is wary of Microsoft's plan to sell software through annual subscriptions, instead of through traditional licenses with a one-time fee.

Asked whether Microsoft is facing resistance from chief information officers to its subscription idea, Dell provided a one-word response: "Yes."

Dell's drift on printers, to a certain degree, illuminates some of the current challenges facing HP, which last week announced plans to acquire rival Compaq Computer.

For years, HP has dominated the printer business and enjoyed healthy margins on ink, supplies and printers. In 1998, the company signed an agreement with Dell that enabled the PC maker to sell HP printers on its Web site and through its corporate sales force. The deal dismayed HP computer dealers, who viewed Dell as a competitor.

Japanese competitors, however, have been able to wear down the strong brand preference for HP printers by selling less expensive products. HP now faces the task of fending off competitors and absorbing Compaq at the same time.

"In 1998, Dell was heavily HP," said Peter Grant, an analyst at Dataquest. "The story of this merger is that it opens up a huge opportunity for competitors."

Dell's shift toward other brands of printers could also gain momentum in light of the merger. If the HP-Compaq deal goes through, the combined conglomerate will potentially control a larger worldwide market share of PCs and servers than Dell. Dell is the largest PC company in the world. By continuing to sell HP printers, Dell would simply be supporting its closest competitor.

Dell has changed alliances in the past following mergers. Digital Equipment at one time was one of the principal providers of field support for Dell. After Compaq bought Digital Equipment in early 1998, that relationship faded and then lapsed.

Overall, Dell said that the HP-Compaq merger will create confusion among customers, which will present an opportunity for Dell to pick up business.

"Mergers of this size are very hard to do, so there could be some potential for confusion and turmoil," he said.

HP representatives could not immediately be reached for comment. Lexmark representatives declined to comment.

As for PC demand, Dell asserted that it won't stay down forever. Businesses typically buy new PCs and servers every three years, Dell said. A number of companies upgraded in the spring of 1999, so a new cycle should kick off in the first half of 2002.

"You had an incredible peak of buying in the second quarter of 1999. I think next year you'll get some kind of a snap-back, modulated on what happens with the economy," he said. "This year, spending by government, particularly U.S. government, is quite healthy, while last year it was not."