Will IBM go direct?
The Wall Street Journal Interactive Edition -- August 13, 1998
Digits: Gambits and Gadgets
In the World of Technology
To be direct or not to be, that is the question these days at International Business Machines Corp.'s Armonk, N.Y., headquarters. That is, should IBM sell its personal computers directly to corporate customers, a la Dell Computer Corp., or continue to rely on distributors? This high-level debate comes after yet another dismal quarter at IBM's PC unit, which cut into IBM's overall earnings and sent the company falling to No. 3 in world-wide PC sales from No. 2 (Compaq Computer Corp. reigns as No. 1). Word around Big Blue is that recently appointed PC chief David M. Thomas, who once oversaw IBM's dealer network, has two or three quarters to get the business humming. Some say he should outsource more PC manufacturing.
IBM's previous PC chiefs also cut costs. But IBM finds itself falling behind Dell because layers of middlemen take a slice of the profits and demand that IBM dole out millions of dollars in "price protection" as prices fall on inventory sitting in warehouses. Yet change isn't going to be easy. Not only is there a "we have to build it" mentality among several key IBM executives, but there is also the huge dealer channel to appease, since it controls relationships with customers.
No matter what IBM decides, "they are not going to displace us at the client," warns Bill Fairfield, chief executive of Inacom Corp., which bought $1 billion in IBM products last year as Big Blue's largest dealer. Instead, Mr. Fairfield suggests IBM can compete against Dell by simply licensing the IBM brand and letting Inacom and others assemble the PCs. An IBM spokesman declines to comment.
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