Dell nukes HP with printer ink pledge

Michael Dell yesterday repeated his threat to undercut rivals on the price of printer consumables, a pledge which could nuke Hewlett Packard's biggest source of revenue.

"The price for the total offering - printer and supplies - can come down quite considerably," said Dell.

Half of HP's income, or $18 billion a year comes from its booming imaging and printing division, and it keeps the giant business afloat: the division has grown 68 per cent this year and comfortably compensates for the $1 billion+ HP has lost on PCs and enterprises systems in the three quarters of the current fiscal year*.

Enter Dell. Last month Lexmark and Dull announced they'd jointly develop their own consumables. The consumer printer business is a "razor blades" business model, where the cost of the initial purchase is low, but margins on the consumables are high.

HP CEO Carly Fiorina scorned Dell's entry, and belittling it as "a channel of distribution for somebody that owns this product", which is quite a remarkable thing for her to say, when you think about it.

She's quite correct in pointing out that profits from such a cut-throat model aren't enough to sustain R&D. HP's stellar labs abound with wonders. Carly tactfully didn't point out that low margin mass production is something the Chinese will win in a few years away, and Dell's longstanding aversion to business where R&D needs to be spent on anything other than process automation and distribution is legendary.

But Dell doesn't know anything about Linux either, arrived late, and it's made a success of its Linux business.

HP owes its burgeoning imaging income from astute investment at the high-end, and is well-positioned to capture more business as ever more commercial printing becomes digital, and as repro houses become obsolete. But the attack from the Banana Grocer is the last thing it needs. ®

*Bootnote That figure again: $1,062 billion combining PC and enterprise systems. Services, including finance, was the only other part of HP to turn a profit. You'll recall that earlier this year HP completed the acquisition of … a loss-making PC and enterprise systems company.

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