Can Lucrative Managed Print Services Help Dell’s Printer Business and its Stock?

About 1% of Dell’s (NASDAQ:DELL) stock value is attributable to the company’s printer business.  Dell sells printers primarily to consumers and many of its printers are sold bundled with Dell PCs.  HP’s (NYSE:HPQ) stock, on the other hand, is much more sensitive to the company’s printer business.  We estimate that printers and ink cartridges account for about 26% of HP’s stock.  Dell is a small player in the printer market compared to companies like HP, Lexmark (NYSE:LXK), Canon and Samsung.

Dell’s printer shipments have registered negative growth in the last two years and we expect the trend to continue.   Dell is shifting its focus more to business customers by preparing to enter the growing managed print services market later this year.  Managed print services allow companies to outsource the ownership and maintenance of their printer infrastructure by paying companies like Dell a periodic fee for the printer equipment that they use.

Below we discuss why Dell’s printer shipments declined in recent years and how Dell’s entry into managed services may help slow further declines.

Trouble for Dell’s Printer Business

Dell’s printer shipments declined from 5.6 million units in 2007 to 4.6 million units in 2009 attributable to the following reasons

1. Poor performance in PC business had an adverse affect on Dell’s printer shipments.

2. Bigger players like HP, Lexmark introduced better priced innovative offerings which Dell could not match.

3. Growing use of wi-fi increased the number of PC users sharing a printer.

This implies that Dell’s Printer per PC ratio, the number of printers sold by Dell divided by number of PCs sold by Dell, declined from 0.15 in 2007 to 0.11 in 2009.

Managed Services a Growing and Lucrative Business

Managed services currently constitute 28% of Dell’s stock.  The significance of managed services for Dell is attributable to high service margins compared to the lower margins that Dell earns on selling PC and printer hardware.  By entering the managed print services market, Dell hopes to strengthen the more lucrative services component of its business will help to offset weak consumer demand for printers.

Customers of managed print services are attracted to the potential reduction in the total cost of ownership for printers.  By paying services providers like Dell a recurring fee, companies eliminate the need for large initial expenditures for purchasing printer equipment and save on IT labor associated with maintaining and fixing printers.

Dell’s Printer Shipments May Benefit

We believe that Dell’s entry into the managed print services business could also have a positive effect on the sale of Dell printers to businesses.  Dell already has a large client base for its desktop management services and now it can leverage relationships with desktop and printer management customers to drive incremental sales of printers.  Customers that use Dell’s managed printer services may ultimately opt to purchase some printers as well.

This can lower the decline rate of Dell’s printer shipments which we estimate to reach 2.4 million units by end of Trefis forecast period implying Dell’s printer per PC ratio be 0.08

You can modify the forecast above to see how Dell’s stock price may be impacted if the decline in Dell’s printer per PC ratio slows down.

For additional forecasts and analysis, here is our complete model for Dell’s stock.