Dell eyeing printer expansion in 2004

The Round Rock, Texas, PC maker on Thursday will reveal plans that "will allow Dell to satisfy an increasing number of customers in 2004 and beyond," the company said Monday in a statement. A company representative declined to elaborate.

Dell is expected to discuss plans for new products and may also announce a partnership, all to help it fill gaps in its current printer product line. Among the things missing from Dell's current line are a color laser printer and a multifunction laser printer that can also fax, scan and copy documents, analysts said.

"Where (Dell is) lacking is in the color laser printer market," said Peter Grant, analyst with Gartner. "My guess is that they're finally going to provide Dell-labeled color printers that are focused on the small and medium business market. That's the fastest growing segment of the laser printer market."

Dell also sells printers to consumers. There, the company could stand to add a machine capable of rendering large photos from a digital camera, another analyst said. Dell's J740 printer can already manage sizes up to 8.5 inches by 11 inches, however.

Dell will detail its plans during a Las Vegas news conference following a Consumer Electronics Show speech by Dell CEO Michael Dell.

If Dell jumps into color laser printers and unveils a new manufacturing partner, that partner could be Samsung, although Lexmark, which currently manufacturers all of Dell's printers, is also a possibility, Grant said.

Epson also has the strong potential to be the second manufacturing partner for Dell, said Brooks Gray, analyst with Technology Business Research. The companies have a long-standing relationship, under which Dell currently sells a number of Epson-branded printers. Epson offers a number of different printer styles, including inkjets, lasers and multifunction devices.

Meanwhile, Xerox could provide Dell with a line of multifunction printers, although that partnership seems less likely, Grant said.

Growing its stable of suppliers makes sense as Dell adds new products to its portfolio, Andy Neff, an analyst with Bear Sterns, said in a recent report.

"We expect Dell to continue to gain further momentum in printers, bolstered with the announcement of new partner(s)," Neff wrote. Working with different manufacturers allows Dell to take advantage of each company's strengths.

Dell's partners also stand to benefit. Dell can offer the manufacturers who supply its printers a pre-established sales channel with access to a number of large businesses or large numbers of consumers both inside and outside North America.

Dell originally entered the printer market with four models, including inkjets and monochrome laser printers. It has since expanded the line to about 10 models. So far, Dell feels its printer business has been a success. Dell entered the market in March of last year, by way of the partnership with Lexmark, and sold 1 million printers through Oct. 31, 2003, the end of its fiscal third quarter. The company is on track to finish its fiscal year in January, having sold 1.8 million or more printers, Dell said in November.

"In printers, we've shipped 1 million Dell-branded printers so far, and we expect that our shipments will increase about 80 percent from the third quarter to the fourth quarter" of 2003, Dell said during the company's third-quarter financial results conference call.

Although Dell's printer hardware and its related manufacturing partnerships will make the most headlines in 2004, the resulting business in selling supplies for those printers is what will make the effort worthwhile in the long run, analysts said.

"With Dell having seeded the market in 2003 by replacing third-party printer sales with Dell-branded printers and growing its installed base, Dell should now start to reap the supplies annuity from the recurring sales of ink and toner, though the business may not be meaningfully accretive to (earnings per share) until calendar-year 2005" (Dell's fiscal year 2006), Neff wrote in his report. But, "In light of Dell's continued momentum in printers, Lexmark may also show more robust year-over-year hardware growth rates than current assumptions, which bodes well for its supplies business in 2004 and beyond."