Dell to Add Hand-Helds, Printers to Its Business

Dell Computer Corp. Chief Executive Michael Dell on Thursday confirmed plans to enter the printer and hand-held computer businesses, ending months of hinting by company executives and investor speculation that the computer giant would take Hewlett-Packard Co. head-on in those markets.

“Printers are a large and attractive market,” said Dell, who made his comments during a conference call to announce the Austin, Texas-based company’s second-quarter earnings. “We’re looking at both inkjets and laser products.”

Dell also said the hand-held market was attractive because the technology for personal digital assistants, or PDAs, was standard, requiring low investments to enter.

“I think you’ll be hearing from us later,” said Dell, who declined to offer a timeline or product details.

The comments came after HP last month stopped selling its printers to Dell, citing competitive reasons. HP captured Dell’s No. 1 position in personal computer sales after it merged with Compaq Computer Corp. this year. But HP’s lead is slim, and Dell continues to gain market share.

As for Dell’s second-quarter results, revenue was $8.5 billion, up 11% from the same quarter last year, while sales for the rest of the computer industry were down 10%. The company had earlier predicted--and analysts had expected--sales to be $8.3 billion. Net income of $501 million, or 19 cents a share, was up 16% from last year, in line with estimates. Dell also forecast $8.9 billion in sales for the third quarter ending October, with earnings between 20 cents and 21 cents a share.

Dell rose to $27.32 in after-hours trading after falling 1 cent to $27.14 in regular Nasdaq trading.

“Their market share is pretty hard to argue with,” said Mark Specker, analyst with SoundView Technologies Group in San Francisco. “They are essentially the only part of the PC business that’s growing, and they’re doing it by taking a lot of market share.”

Still, HP spokeswoman Rebeca Robboy said: “Dell’s business model is not a template for success in the businesses they’re toying with, such as printing.”

Analysts agreed Dell will face a tough fight against HP and Palm Inc.

“It will be easy for Dell to enter these markets, but it doesn’t mean it will be easy for them to succeed,” said Jennifer Thorwart, research analyst with IDC.

In printers, HP is the market leader, with a 37% worldwide market share of inkjet printers in 2001 and a 51% share of laser printers, according to IDC. In PDAs, Palm dominates with a 55% share, while Sony Corp. has about 25% and Handspring Inc. has 10%, according to NPD Group Inc.

With printers, the bulk of the profits lies in selling replacement ink cartridges, which are generally purchased in retail stores.

“If you run out of ink in the middle of the night, you go to the store and you get a cartridge,” Specker said. Dell, however, sells its products online and has little or no relationship with retailers.

Though Dell continues to sell HP printers, it obtains them from distributors instead of from HP. Dell sold 2 million printers last year, including about $300 million in HP printers. Dell accounts for 8% of HP’s inkjet sales, according to a Lehman Bros. report.

With PDAs, analysts say Dell is betting that the devices will eventually double as cell phones.

“The profit pool in PDAs is pathetic,” Specker said. “But the profit pool in cell phones is pretty darn interesting. That’s the way Dell is looking at it over the next two to three years.”

Unlike HP, Palm does not feel threatened by Dell’s plans.

“We have been assured by Dell executives in the last couple of weeks that they will continue to sell Palm-branded hand-helds,” Marlene Somsak, spokeswoman for Milpitas, Calif.-based Palm. “They’ve acknowledged that Palm-branded hand-helds are their best-sellers. We’ve got a very good relationship with Dell and we expect it to continue.”