Dell, IBM in $6B Services Deal

  • Written By: R. Krause
  • Published: October 6 1999

Dell, IBM in $6B Services Deal
R.A. Krause - October 6th, 1999

Event Summary

NEW YORK , 9/27/99-- Dell Computer Corp. and IBM Corp. announced they had agreed to a new $6 billion deal in which IBM will become a key supplier of computer services to Dell corporate customers.

The deal marks an expansion of the $16 billion agreement announced in March, 1999. Under that agreement, Dell will purchase key technology components such as data storage disks and computer chips from IBM. IBM will use the March agreement to provide an outlet (other than its own products) for technology it has developed.

(Dell is currently the #2 worldwide provider of PCs and IBM is #3.)

Market Impact

This deal means Dell once again will have a credible service presence, an area where it has been at a disadvantage since rival Compaq Computer bought Digital Equipment Corporation in June, 1998. (Until that point, Digital had been Dell's service provider.) This announcement will not increase overall market growth, but it will allow Dell to present itself more completely as a full-service PC/server vendor, as well as to compete more effectively against Compaq. Companies that were able to play against Dell's weaker service offering (especially in the server market) will now find themselves at a disadvantage. Dell is also building on the alliance it formed with IBM in March, a move which allows it to use technology it might not otherwise obtain. These factors, along with the seven-year term of the deal, will lead to market consolidation.

IBM benefits from this announcement by increasing its service-based revenues, a key area of growth for it in the coming years. Currently, services accounts for approximately 25% of IBM's revenues. Providing service for the vendor holding the #2 US and #3 worldwide market share for Intel servers is a big win for IBM. In the short term, however, there will be some startup uncertainty/concern as service and support transitions to IBM.

User Recommendations

This agreement is of more interest to potential Dell-buyers than to IBM-watchers. Users who have been considering Dell, but are concerned because of a weak service/support message, should be reassured by this deal. This is an overall positive for those users seriously considering Dell, and is especially beneficial for those who do not have a strong internal support organization. However, users should make sure they get a a single-point-of-contact, i.e. a named individual (vs. getting thrown into a support "pool") to handle their service and support.

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