IBM to Sell Aptiva Direct

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IBM to Sell Aptiva Direct
R.A. Krause - October 20th, 1999

Event Summary

October 18, 1999 International Business Machines Corp. announced that, starting January 1, 2000 it will only sell its Aptiva line of consumer PCs through its "ShopIBM" website. This move follows on the heels of its recent announcement of cuts in the PC organization (See TEC News Analysis article: "IBM to Make Cuts in PC Business Real Change, or Just Buying Time?" 10/13/99). Although the Aptiva is aimed primarily at consumers, we expect this to affect business customers as well.

Market Impact

This announcement is the next step in the retooling of IBM's PC organization, and is designed to get IBM's cost structure back in line. Since losing approximately $1 Billion in 1998, the PC group has been in difficulty, and management feels the "Dell model" (i.e. direct sales, especially through the Internet) is the way to solve at least part of the problem. But, IBM still appears unwilling to commit to this path corporate statements indicate they may return to the retail channel at some point. This lack of clarity indicates that IBM is being reactive, not proactive.

This action, if executed well, will lead to sales growth for the Aptiva. However, because of the short timeframe for execution (less than three months from now), combined with the lack of clarity, we believe execution will not go smoothly (65% probability). Compaq has been trying to fine-tune their model for six+ months; we believe it will take IBM at least that long.

In the bigger picture, this means yet another major PC player is following Dell's (and Gateway's) lead. Assuming IBM prices their systems competitively, we expect this will abet consolidation of the PC marketplace.

User Recommendations

Users who have shied away from IBM because of pricing or retail vs. channel confusion will benefit from this announcement. The benefits arise from (1) IBM's change of focus, and (2) expected pricing benefits.

The hoped-for pricing benefits will not occur until IBM has decided its cost structure is in line, and that the direct model saves them as much money as anticipated. However, users may want to exercise caution until IBM rings out the bugs from their new distribution model, which should take three-six months from the official start date. Once the model is running well, customer confidence in IBM should increase.

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