IBM in $6B Services Deal
- October 6th, 1999
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.)
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.
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.
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.