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Dell Getting Fit for Print

Dell (DELL) shares showed signs of life Thursday, a day after company executives touted progress in the printer market, a relatively recent but significant product push for the world's largest computer company.

Dell has garnered strong sales momentum, but it continues to operate without profit. Dell executives are content to keep growing the business at or near break-even, as they count on subsequent sales of ink and toner to boost profit.

But the selling of ink and toner -- the printer consumables market -- is no less competitive and carries with it its own risks and hazards.

Dell is trying to bring its operational efficiencies to bear on markets beyond the PC, where its supply chain and direct-sales approach provides it with cost advantages over its competitors. Dell has expanded into TVs, digital-music players and data storage, but its most significant new frontier is in printers.

Dell entered the market just over two years ago, and it has quickly carved out a double-digit market share for itself, thanks to an aggressive pricing strategy that came at the expense of other long-time printer companies like Hewlett-Packard (HPQ), Xerox (XRX) and Seiko-Epson. (Another printing heavyweight, Lexmark (LXK), is a Dell competitor, but Dell is also its largest customer).

Most players in the printing business bank on ink and toner to buoy performance, which would sag if it depended only on discounted sales of printers, so price sensitivity to these consumables is a major concern.

Dell offers initial deals on consumables when a printer is purchased, and also offers a real-time monitoring program that will alert the user when supplies are getting low and then directs them to Dell's Web site. The program is designed to get customers hooked early on the convenience of Dell's replenishment service, but it carries risks.

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