IBM Steals Major Customer From Sun
Lisa DiCarlo, Forbes.com, 01.10.01, 11:55 AM ET
NEW YORK - In the game of stealing customers from competitors, today IBM adds a "W" to its column by snagging oil refinery giant Ultra Diamond Shamrock away from Sun Microsystems.
UDS (nyse: UDS) will replace all its Sun (nasdaq: SUNW) equipment--3500, 4500 and 450 series Unix servers--with 10 Unix-based servers from IBM (nyse: IBM). It's a good win, at least psychologically, for IBM, which has been trying to make inroads into Sun's dominant--48% worldwide--Unix server market share. IBM won't discuss the value of the deal, but UDS says it's worth "millions, not tens of millions."
Sun still reigns in the $32 billion market for Unix servers, accounting for 39% of dollars spent on those products.
IBM is promoting the deal as evidence of a faltering Sun, but this stuff happens all the time. Customers are always trying to squeeze lower prices out of suppliers, and switching vendors is a good way to do it, especially if you agree to be a marketing prop: the subject of a press release.
This isn't the first time UDS has done business with IBM. In fact, five years ago, UDS dumped IBM to go with Sun for a lot of the same reasons it's now returning to IBM.
"One of the issues I have with Sun is they took a long time to be responsive to my requirements," says Doris Beaulieu, vice president and chief information officer at UDS. "They're not happy to have lost me but they took me for granted and, you never know, IBM could very well do the same thing."
In fact, they have. "We went from IBM to Sun [five years ago] because we weren't happy with IBM. They weren't customer-driven."
Beaulieu's characterization of Sun seems to fly in the face of its high-touch relationships with America Online (nyse: AOL) Web hosters like Exodus Communications (nasdaq: EXDS) and auction site eBay (nasdaq: EBAY). Perhaps UDS' business--oil refineries and convenience stores--isn't sexy or lucrative enough for Sun to bother trying to keep it.
IBM says there is plenty of back-and-forth among the server companies on stealing each other's customers, but this is different because UDS, with $15 billion in sales, is making a wholesale switch from Sun.
"This is a full frontal attack," says Tim Dougherty, IBM's director of e-business strategies. USD "is using IBM servers for their entire SAP installation. It's the heart and soul of their business." He's referring to the migration of SAP enterprise software from Sun to IBM's platform, which can be a time-consuming, risky and expensive maneuver.
Beaulieu says the major factor in switching was cost reduction through consolidation. They consolidated 50 Sun servers to 10 IBM servers; 256 processors to 56; 800 hard drives to 150; and 16 backup systems to one.
"The second thing is we needed to be flexible in the future. With IBM [servers] we can quadruple our capacity without adding a box."
He says the company was looking to stop leasing equipment and purchase it instead. "It's always the wrong timing with leases [in terms of trading in for new equipment]. And when you lease you end up paying more."
Beaulieu says he expects UDS, which approached IBM to buy the servers, to save millions annually by consolidating the equipment.
Sun apparently dotes on certain customers, especially Internet service providers. They've even set up a division dedicated to selling and servicing them specifically. UDS could have used that sort of attention.
"I don't have anything against Sun. They have good equipment. But they never believed I would move to IBM."
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