When Will OEMs Learn Not To Count On Dell?

When will OEMs realize it makes little to no sense to do a deal with Dell?

Maybe I've been at this too long, but I can't think of a single deal that any manufacturer has done with Dell that you would say has been a dream for both sides over the long term.

ROBERT FALETRA Can be reached at (781) 839-1202 or via e-mail at rfaletra@cmp.com.

Let's go way back to the Hewlett-Packard deal, when the leader in printers sold its own branded inkjets through Dell. It's an agreement that eventually fell apart because HP would not bend to Dell's desire to rebrand the HP printer with a Dell logo.

When that relationship broke up, Lexmark and others stepped in and said, "Hell, I'll take that volume, and sure, you can tell the world it's your printer." As if that wasn't bad enough, this gang of printer makers handed over the keys to future profits by allowing Dell to sell its own branded ink.

Now—years into its Dell deal—Lexmark announces a less-than-stellar quarter, blaming it in part on flagging replacement ink sales and a tough pricing environment for low-end inkjets.

Well, excuse me, but the whole world knows that the printer game is a razor-blade approach: Give away the printer and make your money on the ink. That being the case, why would you let someone else not only sell your product (or more accurately, give it away) but give away the profit engine as well—in this case the ink.

It's something HP realized and backed away from.

These deals with Dell cause other issues as well. EMC's agreement to allow Dell to sell the Clarion line under the Dell name is a good example.

Talk with many EMC solution providers, as I do, and they will tell you that Dell undercuts them in price and that the EMC direct sales force favors Dell in the field. What often happens, solution providers tell me, is that the EMC direct sales force asks what brand of servers the customer is using, and if Dell is the answer, the business gets pushed that way.

The trade-off for deals that aim to leverage Dell's volume is lower margins in the channel and a whole lot of channel conflict. And now Dell is 10 percent of EMC's receivables.

So EMC, which has not exactly proven that it is a channel-centric supplier, not only is making it more difficult on itself in the channel, it is driving profits lower for its partners to boot.

It's always the allure of the volume that gets OEMs salivating over a relationship with Dell. Maybe it's the need to produce short-term results for Wall Street that drives these pacts, but in the end, these deals never seem to be as lucrative in year three and beyond as they were in the first 12 months.

What's your view on OEMs that align with Dell? Make something happen. E-mail CMP Channel Group President Robert Faletra at rfaletra@cmp.com.