HP could have the most to lose. The printing business is considered to be HP's crown jewel and the source of most of its profits. Roughly 70 percent of HP's profits come from printing and imaging, with somewhere around half coming from supplies, Andrade said. HP sells a lot of printers through Dell. "They are one of our top resellers" of printers, said HP spokeswoman Diane Roncal. "And we are one of their largest third-party suppliers." Although Dell has been content in the past to simply bundle printers with its PCs, the company said at its April analyst meeting that it is looking to double in size. Part of that growth would be through new initiatives such as selling networking gear and digital projectors, and also through continued growth in servers and storage. At the time, Dell was also said to be eyeing a deeper move into printers. Neff said any move is probably 6 to 18 months away and notes that an acquisition is probably less likely, given that Dell has traditionally eschewed purchasing other companies. He also said that Dell making its own printers is another unlikely scenario, casting as more feasible the possibility that Dell would stamp its brand on someone else's printers or just finding a way to get a portion of the ink business for the printers it sells. Neff said that it appears Dell is still weighing its options. "We get the sense that Dell is trying to raise the competitive heat among printer vendors," Neff said. HP's printing and imaging business took centre stage during the battle over its merger with Compaq. Former board member Walter Hewlett argued that the Compaq deal would dilute that business, while management said that business could be augmented as part of a larger company. However, some analysts have argued that the growth in the printing business is likely to slow regardless. "Assuming Dell does it right, its entry into the printer business could have a negative impact on HP since the printer business is HP's primary source of profitability," Neff said. "The outlook for Lexmark is more mixed in that it could get acquired or get incremental revenue at lower margins or a competitor could get the business." HP's merger with Compaq may have prompted Dell to take actions, said Bill Gott, president of printer market research firm VM Strategies and editor of industry newsletter Printer Market Monitor. "Dell was a fairly large reseller of HP printers in the past," Gott said, noting that Dell also got good pricing from HP. "No doubt they will be looking for another source of printers that is not their major competitor." Like other PC companies, Dell changes it allies with the circumstances. After Compaq bought Digital, Dell phased out its long relationship with Digital's service division. Recently, after memory prices rose, the company began to buy from more manufacturers to avoid "cartel-like" behaviour, Dell said. A few days after the HP-Compaq deal was announced, Dell reminded the world that the company has been buying an increasing number of printers from Japanese manufacturers, a trend that would continue. Michael Dell has also publicly said that his company is interested in developments at AMD. Dell remains the only company to have never used chips from AMD. Gott estimated that Dell accounts for, at most, a few percentage points of HP's printer sales but said that still represents a significant volume. Among the potential partners for Dell, Gott said Xerox might be a good fit. "Xerox has a lot of technology, including a lot of patents on inkjet technology, and they exited the (printer) business about a year ago," Gott said. Xerox had a deal with Sharp in which Xerox sold printers manufactured by Sharp using Xerox technology. Lexmark would also be a likely candidate, with Canon perhaps less likely, Gott said. "Canon hasn't done as much marketing of their ink technology to other vendors," Gott said. "But that doesn't say that they couldn't do it." Gary Peterson, an analyst at market researcher ARS, said there have been rumours for some time that Lexmark has been trying to ink deals with a number of PC makers including Dell and Gateway. A Lexmark representative said the company does not comment on rumours. Lexmark had a deal with Compaq through which it sold printers under the Compaq brand name, a partnership that ended when the HP merger closed, the representative said. Peterson said Dell would likely demand a cut not only of the ink cartridges it could sell, but also of a share in the overall refill market that could be attributed to printers Dell sold. Peterson said that any Dell arrangement would not pose a major threat to HP. "HP has such a stranglehold," Peterson said. "It would take a Dell-Microsoft-IBM conglomerate to be any threat."
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