Talk of Dell printer move heats up

A pair of analyst reports issued Tuesday added to a torrent of recent speculation that the Round Rock, Texas-based PC maker's next move will be into the printer market. Dell has plunged into a number of new markets over the past few years.

Although an acquisition of an existing printer maker is a possibility, it's more likely Dell would enter the market by linking up with an original equipment manufacturer (OEM) or a branded printer maker such as Lexmark, which would then make hardware that gets sold under the Dell brand name. Dell currently sells Hewlett-Packard, Lexmark and Epson branded printers.

Dell has used the partnership strategy successfully in areas such as network switches. Most recently, Dell launched a new digital projector, created by a partnership deal with manufacturer Coretronic.

"The company is more likely to enter the market through an OEM partnership...to which Dell could later add value somewhere down the line through co-development and manufacturing efficiencies," Kimberly Alexy, an analyst with Prudential Securities, wrote in a report Tuesday. "On the laser printer side, which is mostly corporate, the business would appear to be an easy fit given Dell's brand share in the space. Inkjet sales would appear to be a tougher market to crack."

Additionally, Kevin Rollins, Dell's chief operating officer, said during a Bear Stearns conference call with investors that it was "highly unlikely" Dell would acquire printer maker Lexmark, further cementing the idea that Dell would forgo a buyout in favor of a partnership deal of some kind. Dell has made one acquisition in its history, a company called ConvergeNet, but it shut down the operation two years later.

Charles Wolf, an analyst with Needham, said in a report that Dell would likely partner with Lexmark and use low-priced printer hardware and ink cartridges to deal a blow to competitor HP. If Dell were to lower the price of ink cartridges, which are incredibly profitable, it would force HP to follow, he said. Dell was once HP's largest reseller of printers, according to other analysts.

A move into the printer market would also give Dell the opportunity to present a more complete PC bundle that includes a Dell-branded PC, monitor and printer, said Brooks Gray, an analyst with Technology Business Research.

"The consumer market is extremely brand-oriented," Gray said. "Offering a Dell-branded printer would create a more complete branded system" in the eyes of buyers.

But even if Dell makes such a move, it probably won't sever its current relationships with HP, Epson and Lexmark right away. The company would likely work to shift its customers away from those printer brands slowly.

"If Dell brands its own printers, I'd have to assume it would continue to offer HP and Lexmark printers, at least for the time being," Gray said.

Dell representatives declined to comment on the reports.