Threat to HP

By Stan Gibson  |  Posted 2002-10-09 Print this article Print

Online exclusive: A day after HP's Fiorina scoffed at Dell's printer plans, Michael Dell told the crowd at Gartner's gathering that his company plans to turn up the heat on professional services.

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Threat to HP's Profits?

And if Dell drives prices and costs down 40% or 50% (as Michael Dell said is typical for fields his company enters), it could pose profit problems for HP. In each of the past four quarters, HP's personal-computer, corporate-computer and financial-services businesses all have lost money. The only big winner has been its Imaging and Printing Group, which delivered $813 million of operating earnings in the most recent quarter.

HP Services, the lone other profitable unit, delivered $275 million. Combining the services businesses of HP and Compaq was the prime motivation for that hard-won merger, Fiorina said Tuesday. However, Dell said Wednesday services was "one of the fastest growing" parts of his Round Rock, Texas, business, with about half its revenue derived from "close-to-the-box" services such as support and maintenance and half from professional services, such as technical consulting, network design and implementation and the like.

Dell in June also announced the acquisition of New York-based Plural Inc., a financially troubled Web systems integrator. Dell said the purchase will allow his company to provide its customers with better professional services for deploying corporate applications from Microsoft. Dell's targeting of services—the second-most profitable part of HP's business—came almost exactly 24 hours after Gartner analysts Paul McGuckin and Betsy Burton grilled Fiorina on the same stage about Dell's threat to HP's Imaging and Printing business.

The Imaging and Printing Group recorded $2.32 billion of operating earnings in the first nine months. HP as a whole has recorded just $2.26 billion. Dell plans to enter the market next year with its own brand of printers and cartridges, manufactured to its specifications by Lexmark, a unit of IBM.

Fiorina dismissed that strategy, citing the fact that Dell already sells printers under the Lexmark brand. "'Dude, you're getting a Lexmark' just doesn't have the same ring," said Fiorina, "which is maybe why Michael Dell has decided to private-label printers."

Fiorina said HP in the past two years had become the most efficient producer of printers and the highly profitable ink cartridges that go with them. It claims to be the leader in $50 printers; and generates most of its profit from the boxes of ink that can sell for $35 or more each.

But Dell said his company would be successful in that business as well. "If you look at any other market Dell has gone into, Dell has been able to wring out inefficiency and reduce cost," he said.

Dell has looked at both the production of printers and the production of cartridges and sees inefficiencies on which it can capitaliz. Dell said the company would not make HP-compatible cartridges, instead presenting its own type of cartridges.

But Dell is clearly moving to undercut HP in both hearts of its business. He said companies that think of Dell as a merely a low-cost assembler of components or distributor of computing goods are not seeing the whole playing field. "It's not safe to assume that Dell is staying in the same place," he said.

Stan Gibson is Executive Editor of eWEEK. In addition to taking part in Ziff Davis eSeminars and taking charge of special editorial projects, his columns and editorials appear regularly in both the print and online editions of eWEEK. He is chairman of eWEEK's Editorial Board, which received the 1999 Jesse H. Neal Award of the American Business Press. In ten years at eWEEK, Gibson has served eWEEK (formerly PC Week) as Executive Editor/eBiz Strategies, Deputy News Editor, Networking Editor, Assignment Editor and Department Editor. His Webcast program, 'Take Down,' appeared on Zcast.tv. He has appeared on many radio and television programs including TechTV, CNBC, PBS, WBZ-Boston, WEVD New York and New England Cable News. Gibson has appeared as keynoter at many conferences, including CAMP Expo, Society for Information Management, and the Technology Managers Forum. A 19-year veteran covering information technology, he was previously News Editor at Communications Week and was Software Editor and Systems Editor at Computerworld.

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