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Dell Enjoys Some Success As It Goes After Top Dog Hewlett-Packard

Posted on: Friday, 4 June 2004, 06:00 CDT

Jun. 5--SAN DIEGO -- When it comes to high technology, the lowly printer may seem pretty simple.

Yet at Hewlett-Packard Co.'s sprawling research labs here, the science behind printing documents and digital photos is serious business.

HP's printing and imaging division spends more than $1 billion a year studying how ink flows, how tiny jets squirt color and what kinds of paper keep images from fading.

The company holds more than 9,000 patents for imaging and printing technologies. It employs about 2,000 scientists and others here. It has been known to spend years just developing a new shade of ink.

"It's amazing, the technology coming just from the supplies" such as ink cartridges and paper, said Nils Miller, a senior HP scientist.

Now more than ever, HP's research and development is of utmost importance to the company that has dominated the printer industry for decades.

Dell Inc., HP's archrival in the computer business, is storming into the printer market with goals to control it like it does the PC business.

In just a year since it launched its line of Dell-branded printers, the company has gone from being a non-player to selling almost 5 percent of all U.S. printers and all-in-one machines that also send faxes, make copies and scan photographs.

In the business of all-in-one inkjet machines alone, Dell has vaulted into a distant No. 2 spot in the United States behind HP, according to some estimates. It has been less successful elsewhere but is still growing fast worldwide.

"This has been the fastest product launch and country expansion of any product line at Dell," said Greg Davis, vice president of sales for Austin, Texas-based Dell's printer division. On Wednesday, Dell announced it will start selling printers in Japan, bringing to 14 the number of countries where it sells them.

To stave off its Texas rival, HP -- which in the Atlanta area employs about 2,500 sales, service and contract management workers -- is counting on its technology and its heavy investments in research and development.

While R&D is paramount at Palo Alto, Calif.-based HP, it's almost an afterthought at Dell.

That's where HP has an edge it's not about to lose, said Vyomesh Joshi, HP's executive vice president for imaging and printing.

"There's a big difference between the PC business and the printing and imaging business," Joshi said.

PC companies have a continuous source of technology and innovation from Microsoft Corp. and Intel Corp. -- the primary suppliers of PC software and semiconductors, he said.

But in the printing business, "you have to have the technology," Joshi said in an interview here, where HP held a meeting for analysts and press last week.

Most of the technology in Dell-branded printers, in fact, comes from Lexmark International, Inc., which manufactures printers that Dell rebrands under its own name. Earlier this year, Dell struck similar pacts with three other companies, Samsung Electronics Co., Fuji Xerox Co. and Eastman Kodak Co.

Without its own technology, Dell could be at a disadvantage in keeping up with HP in making faster, better and cheaper printers in the future, Joshi said.

"Dell said ... they were going to destroy HP's profit pool, they were going to change the supplies business model ... but the facts are, none of that has happened," he said.

Most of the early growth in Dell's printer business, in fact, has come not at HP's expense, but at that of its partner, Lexmark, and other printer companies, according to figures from technology research company IDC. Even before Dell started selling its own brand of printers, it sold those made by Lexmark, Epson and others -- and still does on its Web site.

And while Dell did sell an estimated 1.6 million of its own printers worldwide last year, HP sells almost that many every week.

Last year, HP sold 43.6 million printers worldwide and it controlled about 41 percent of the market, according to IDC. Dell had about 1.5 percent of the global market.

The big winners in the competition between the two giants may be consumers.

Dell claims it has already driven down consumer prices by 30 percent in some areas. Today, Dell sells some types of inkjet printers for about $120 that competitors just 18 months ago were selling for $200, Davis said.

Not to be outdone, HP on Tuesday announced it would begin selling a new color laser printer priced at $499 -- the cheapest machine of its kind in North America, according to the company.

Falling prices aside, HP's big leads in R&D and in market share make the growing printer war between it and Dell a "noncompetition," said industry analyst Stephen Baker.

"A lot of people have taken runs at HP in the past, but nobody has been successful in a long, long time," said Baker, director of industry analysis at research company NPD Group Inc.

Of course, analysts and others have wrongly dismissed Dell before.

In 20 years, the company has grown into the world's biggest supplier of PCs -- HP is a close second -- and its business operations have been studied and duplicated by countless companies.

Like everything at Dell, its strategy in the printer business is tied to its direct sales model, said Davis, the company's printer sales chief.

Because it avoids retailers and vendors and sells directly to customers, it can reduce distribution costs.

And because it deals directly with customers, it gets lots of information about them -- everything from the type of computers they have to how much ink they typically use -- that can make service calls and supply ordering easier and more efficient, Davis said.

As for future printer technology, Davis claims Dell actually has an advantage. Instead of relying on one source of new technology, like HP, Dell can rely on that of all its other partners. That research also is cheaper than if Dell did it in-house, he said.

Some industry watchers agree that Dell may be on to something.

"True, HP has its own technology ... while Dell has to rely on others," said IDC senior analyst Jennifer Thorwart. "But just because Dell doesn't own the technology doesn't mean it doesn't have access to some of the best."

HP's Joshi disagrees.

"Customers value innovation," Joshi said. "And they (Dell) are not an innovator, they're a distributor."

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