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Dell Computer on Tuesday unveiled plans to develop and manufacture printers and supplies with the help of Lexmark International Inc., a $4 billion veteran of the printer business. Dell's strategy has two phases. Its short-term goal is to have Lexmark act as the main supplier of printers and ink cartridges so Dell can push into the printer market by the holiday season. Dell's longer-term goal is to sell its own branded printers and create a new source of revenue through the sales of printer supplies.
Although Hewlett-Packard has a firm hold on the printer and printer-supplies market, analysts believe there's room for Dell. "Dell sized up the situation at HP after it acquired Compaq and saw that HP has been able to shore up its balance sheet in a large measure because it has this steady revenue stream from printers and supplies," says Ken Weilerstein, a Gartner research director. Most of the money spent on printers comes after the initial purchase. A vendor can make one penny for every black-and-white page its customers print, more for color, Weilerstein says. In workgroup settings with a huge installed base, this can add up to significant revenue.
Although Dell has a large customer base to penetrate with new printers and printer supplies, moving into a space so thoroughly dominated by HP has some risks. "In order for Dell to make this vision work, they have to get deeply involved in the printer business," Weilerstein says. Dell not only will have to figure out a way to make the supplies business profitable, it will also have to develop innovative technology to remain competitive. HP has, for example, developed a line of imaging products that take advantage of digital photography's growing popularity. There's money to be made selling supplies for printing digital photographs, but HP has a big head start.