When Dell introduced the 1100 monochrome laser printer in the United States and Europe in June, the 1100 became the lowest-priced laser printer on the market. Having set an introductory price of only $99, Dell aggressively undercut its nearest competitors, Samsung and Konica Minolta, which both offered similar printers but for at least $50 more. Dell also sought to redefine price entry points for the growing small-office/home-office (Soho) consumer printing segment.

But the introduction of the 1100 also set up the Soho segment's players for a potential catch-22: Manufacturers of very low-priced printer hardware are betting on subsequent consumables sales to recoup the margins lost to the heavily discounted printer tags. But, since the typical home user prints far fewer pages than the business customer, the volume of subsequent Soho consumables sales could prove too low to make up the shortfall.

Nonetheless, four months later, Dell has continued the momentum-and thus far its market strategy has paid off. Its competitors in this segment have not been able to offer sub-$100 models.

The 1100 monochrome is designed to make documents look laser-sharp and professional, with crisp text and graphics at up to 15 pages per minute (ppm) and up to 600 x 600 dots/inch. With its compact size and ease of setup, the printer is ideal for use in a small office. It has an easy-to-use, one-button operator panel and enables flexible paper handling.

The 1100 features 2 Mbytes of standard memory, a 150-sheet input drawer and a 50-sheet output capacity tray, allowing for a maximum-duty capacity of 5,000 sheets per month. It connects to a PC with USB 1.1 ports and is compatible with Microsoft Windows 98se, Me, 2000 and XP. A 90-day limited warranty is provided.

The printer comes with a quick-setup utility guide and software that includes a Dell Toner Management System.

Just about everyone is aware that lower manufacturing costs result when IT and consumer electronics products are outsourced, but how razor-thin must margins be for manufacturers to stay competitive in today's printing market?

To answer that question, we examined the Dell 1100's production cost, assuming a product volume of 50,000 units under the premise that the model was produced in China. To do that, we estimated the purchase costs of commodity components, manufacturing costs of fabricated components and location labor rates.

The result was a production cost of $108.99 per unit. The materials and components in the machine account for $90.74 of the cost of manufacturing.

At present, this model is priced at $99. Given the production cost of $108.99 per unit (not accounting for tariffs and taxes), Dell is clearly seeking to recoup its marginal loss through future sales of consumables.

The 1100 is the result of a collaboration between Dell and Samsung. The South Korean manufacturer sourced the engine of its Samsung ML-1610 to Dell, which caused a problem in the European markets: The Dell 1100 and the Samsung 1610 were competing in a fierce side-by-side battle that Dell ultimately won by giving away the printer free.

Entry-level monochrome page printers are a growing segment. Dell recognizes that it needs a low-priced monochrome printer to target the Soho consumer base. With the number of two-printer households (the count usually includes one photo-specific unit) steadily rising in the States, the need for a robust monochrome printer has grown in importance. Dell is uniquely positioned to attack the growing Soho monochrome-printer segment because of its success with cost controls and its effective marketing to Soho customers. With the 1100 complementing Dell's portfolio, the Texan beast of the printing industry now has a well-rounded lineup that not only addresses all business needs but has also opened the floodgates on a new customer segment for laser printers: the average consumer.

Counting on consumables
With hardware prices this low, it is no surprise that Dell is relying heavily on its consumables revenue. Dell openly admits that its printing business up to this point has not been designed for immediate profitability. The company is looking to 2006 to begin seeing profit from the sale of consumables, and it is doing everything to protect that future revenue. For example, Dell's trademarked Toner Management System sends out e-mail alerts and prompts to encourage online toner purchases.

Dell continues to sacrifice profit to increase its consumer installed base, but whether the consumables revenue will indeed start flowing next year remains to be seen. The 1100, in particular, could face a problem with profitability because of the low page volumes-and thus the modest toner requirements-generated by the unit's target customers.

Philip Grote (pgrote@currentanalysis.com), European printer analyst at Current Analysis Labs (San Diego)