HP Voids Dell Printer Deal

Hewlett-Packard Co. last week said the company is going to stop selling printers, scanners, handhelds and other supplies to Dell Computer Corp. after apparently confirming rumors that the PC maker plans to launch its own brand of printer products.

The move surprised Dell officials, who have publicly expressed an interest in tapping potential profits from printer sales but have yet to announce any plans to enter the market.

Nevertheless, HP said it believes the company will soon emerge as a competitor in the printing market, which HP now dominates. As a result, HP, of Palo Alto, Calif., said it is voiding its contract with Dell, which covers a wide variety of products.

"We notified Dell ... that we are canceling our reseller agreement," said HP spokeswoman Diane Roncal. "The reseller agreement covers LaserJet and ink-jet printers, photo printers, digital cameras and scanners, as well as other categories, like handhelds."

Mike Mahrer, a spokesman for Dell, of Round Rock, Texas, said the company was taken aback by HPs decision.

"Whats interesting and, frankly, surprising to us is that the mere possibility of us getting into that business would bring this kind of reaction from HP," Mahrer said.

Despite HPs assertion and widespread speculation that Dell will move into printers, Mahrer declined to discuss the computer makers plans.

"Theres a lot of discussion out there about if we would, how we would or why we would [sell our own brand of printers]," Mahrer said. "I dont think its a secret that weve been evaluating that market and a variety of other markets that are contiguous to the products we currently sell."

Furthermore, Mahrer said, HPs voiding of the reseller agreement wont prevent Dell from selling HP printers.

"If our customers want HP products, we will find a way to provide them," Mahrer said.

While Dell can resell HP products it obtains from other distributors, it would likely pay higher prices for those items, eroding already-slender profit margins it makes on resale products.

For HP, the decision to cut its ties to one of the worlds largest PC vendors could further undermine its sales, which have already been hard hit by slumping demand blamed on a weak U.S. economy.

While Roncal said the canceling of the agreement with Dell would have an "insignificant" impact on HP, Merrill Lynch & Co. Inc. analyst Steven Milunovich, in New York, estimated that Dell accounted for 3 percent of HPs printer hardware, or $300 million a year.

"HP is starting to contact channel partners regarding the news, and we fully expect to have commitments from other resellers to take on the volume originally intended for Dell," Roncal said.

While some in the industry are predicting a printer war between HP and Dell, one analyst said its too early to tell how events will shake out.

"The important point to remember is that this is still a war on paper only at this point. Dell does not have printers yet, and it needs to detail its plans and execute those plans," said market analyst Andy Neff, of Bear Stearns & Co. Inc., in New York. "There are important issues to address, including how to get ink cartridges to customers."