Issue #0524/2 - Is Dell’s anticompetitive behaviour a problem to the printer channel as well as to the computer channel?
Following the article in TCPglobal Issue #0521 - "Does Dell’s pricing strategy have legal implications for other manufacturers?", press reports now indicate that Dell’s European headquarters and several country headquarters of Intel have been ‘visited’ by officials of the EC directorate of competition, who have removed laptop computers from senior executives at Dell in order to further an investigation into whether the company has been involved in anticompetitive behaviour.
Suspected of receiving money from Intel (possibly in the US) as a subsidy to ensure that PC and server tenders to large organisations such as universities were won by Dell rather than systems integrators or other suppliers, the EC commission received a number of complaints from industry channel players.
One spokesperson claimed to have seen bids by Dell that were “25% below our material costs”, a pricing strategy that is based on taking a loss on the hardware contract in order to build market share and installed base and to capture lucrative ongoing service and maintenance contracts.
Intel is implicated because one of the targets in the PC and server competition wars is chip manufacturer AMD. Dell uses Intel chips whereas various other players base their systems on AMD chips that are preferred by many who have a technical understanding of chip technology.
Although there is no direct comparison possible in the printer industry, there is a clear parallel that has similar dangers.
In the printer industry, we can see the influence of low-cost hardware strategies by comparing the pricing of models from manufacturers such as Lexmark or Dell and Kyocera Mita. With its policy of making a profit on hardware, Kyocera Mita’s pricing can easily be seen to be at least 28%, and up to 170%, higher than pricing on equivalent models from Lexmark and/or Dell.
But, as we are all know, by the time the cost of consumables over a period of ownership is also taken into account, the difference in Total Cost of Printing to the user is heavily narrowed in the case of Dell and actually reversed in the case of Lexmark.
If manufacturers who are not making a profit on the hardware could not guarantee sales of supplies, the business model would fall apart.
Furthermore, a look at the copier industry very quickly reveals the difference in the marketing models of printer manufacturers and printer manufacturers. In addition to Kyocera Mita, with its heritage in both camps and policy of always making a profit on hardware, we also see players like Konica Minolta and Ricoh (each holding a major place in the copier market but also selling printers) whose MFP prices are usually at least 5x above the cost of a printer with similar print speed and are sold using a very different business model.
Dell 5100cnTo focus again on Dell, printer pricing is so low that one cannot help but assume that the company is currently making a loss on the hardware and making minimal margin on supplies simply to build market share and installed base and to rock the boat in the industry.
For instance, the Dell 5100cn uses the same Fuji Xerox engine as Xerox’s new Phaser 6300. However, Dell sells its 5100cn at only two-thirds of the price that Xerox asks for its Phaser 6300. Of course the machines are not identical. In particular, the print controller from Dell is not a Phaser, meaning that performance and print quality are potentially very different – a fact that potential buyers should be keenly aware of.
With its stated aim of ‘driving excess profit out of the industry’, Dell is in danger of again being accused of anticompetitive behaviour. If other manufacturers were ever forced to adopt a direct sales approach as a defensive strategy against Dell, then Dell could justifiably also be accused of targeting the survival of the channel as it pursues its own direct sales strategy.
Industry players are quoted as wishing the EC had taken action against Dell 10 years ago but perhaps even a month ago would have sufficed, before the story was made public in the press. Having been alerted to the danger of an investigation, no doubt it will have been all too easy for Dell (and Intel if involved) to have massaged records in order to hide evidence of any suspect transactions and cross-subsidising.
However, channel players (an no doubt other manufacturers) are overjoyed at the action against Dell and are looking forward to such time as Dell may be found guilty of the allegations brought against it and required to pay compensation to the aggrieved channel players.
Dell, of course, claims that it does ‘profitable business’ and Intel maintains that its business practices are ‘fair and lawful’.
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