IBM dropping Inacom ties in wake of Compaq deal
By Joe Wilcox
Staff Writer, CNET News.com
January 7, 2000, 4:40 p.m. PT
Ripple effects from Compaq's acquisition of the distribution wing of
Inacom are spreading, as IBM today said it would terminate the bulk of its
multimillion-dollar relationship with the distributor.
The move eliminates one of the uncomfortable tangents of Compaq's $370
million acquisition earlier this week. By buying Inacom's distribution
division--which ships billions worth of computer equipment from
manufacturers to customers annually--Compaq effectively was in line to
become a lead distributor of Big Blue and Hewlett-Packard products. As a
distributor, Compaq would have been privy to competitive information it
ordinarily wouldn't get.
"It should come as no surprise that we
are not going to authorize Compaq as
a distributor of IBM product," said Jon
Judge, general manager of worldwide
sales and service for IBM's Personal
System Group.
Prior to the Compaq sale, Inacom's
relationship with IBM was fairly
extensive. Not only did Inacom
distribute IBM products, it built and
configured IBM PCs and provided
services to Big Blue customers.
Inacom's stock rose to 9 on the day the
Compaq deal was announced but has
dropped back to 6.06. Inacom
executives during a conference call
about the deal said it would reduce
earnings.
The pact between Compaq and Inacom is largely a marriage of
convenience. Compaq wants to start selling more PCs directly and needs the
distribution and logistics systems that Inacom will give them. By contrast,
Inacom, like a number of other distributors, has been struggling with thin
margins.
IBM plans to terminate the last three relationships effective when Inacom
completes the facilities sales to Compaq, perhaps as soon as 45 days.
"We will transition our relationship to Inacom appropriate to the new
business model they have put themselves in," Judge said. IBM will reduce
Inacom to a second-tier distributor that must buy products through another
wholesaler.
The "co-location" relationship between IBM and Inacom, where a distributor
rents space in a PC maker's manufacturing facility in order to build
computers, will be potentially the most difficult relationship to sever.
Gates-Arrow, MicroAge and Pinacor are among the other distributors with
co-location operations with IBM.
This is not the first time a Compaq acquisition has disrupted long-standing
relationships. After Compaq announced it was buying Digital Equipment
Corporation, Dell Computer found itself seeking a new partner to provide
on-site services and consulting. Digital was on of Dell's primary field partners.
IBM is not the only Compaq competitor whose systems are distributed by
Inacom. Others include Dell and HP, and they may follow IBM's lead.
"We obviously were disappointed when we found out that Inacom had sold a
large part of its business to one of our biggest competitors," Judge said. With
that, our first concern is our customers and to make sure they are minimally
impacted by this decision Inacom and Compaq have made."
News.com's Michael Kanellos contributed to this report.
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