Dell-'evolutionary'-moves----> 'Nothing would surprise me' Scacco.
John:
here is is nice piece of journalism from the home turf.
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Lambert and Scacco said Dell's relationship with IBM will grow in ways that help both companies. Scacco was asked about analysts' expectations as well as the speculation that Dell would produce PCs for IBM.
"Nothing would surprise me," he said.
A)Speculative reports published early Thursday indicated the two companies would announce that IBM's huge service team, some 120,000 people strong, would support Dell's growing enterprise business of supplying powerful server computers to the world's biggest companies.
B)The agreement is consistent with Dell's strategy of leveraging available research-and-development investment in the PC industry rather than paying to develop what already exists.
1)
A Dell executive said the agreement will enable the company to maintain growth in larger computer systems by gaining quick access to IBM's wealth of technology including disk drives, memory chips and flat panel displays.
2)
Dell officials say this week's announcements are consistent with Dell's strategies of exploiting the fast-growing business potential of the Internet and making heftier, more profitable computer systems for the most lucrative corporate accounts.
3)Dell officials say these moves are evolutionary, not revolutionary.
"It's not like this is a new start. It's just execution of previously stated strategy," spokesman Peter Scacco said Thursday.
4)"I was surprised to learn this morning that $16 billion was the largest agreement ever announced," Lambert said . "It could even be a better partnership than even those numbers might suggest."
5)That had helped fuel speculation that IBM might ask Dell to assemble some of its PCs in Dell's highly efficient factories. Dell, the No. 2 PC maker behind Compaq Computer Corp., had revenue of $18.24 billion in its most recent fiscal year.
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Dell, IBM agree to $16 billion deal
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Supply agreement represents strategy shift, new alliance for rivals
By Jerry Mahoney
American-Statesman Staff
Published: March 5, 1999
ROUND ROCK -- Continuing a string of major announcements as it reacts to a rapidly changing market, Dell Computer Corp. said Thursday that it will buy an estimated $16 billion in advanced IBM equipment over seven years.
The IBM agreement -- coupled with Dell's launch Wednesday of an online store that will offer more than 30,000 products and a previous signal that Dell will offer a personal computer line for under $1,000 -- suggests that in 1999 Dell will move well beyond its bread-and-butter business of making PCs.
A Dell executive said the agreement will enable the company to maintain growth in larger computer systems by gaining quick access to IBM's wealth of technology including disk drives, memory chips and flat panel displays.
"The industry is really running away from us faster than we can keep up," Dell Vice President Mike Lambert said at a news conference in New York. "No one company can do everything for themselves. We acknowledge IBM's presence. The amount they spend on R&D is very substantial. For us to tap into that resource and to work closely with them gives us an awful lot of flexibility as we design our products."
IBM spends about $5 billion a year on research and development. Dell, which works closely with key suppliers such as Intel Corp. and Microsoft Corp., spends about $350 million annually on research and development.
The wide-ranging pact between two companies that compete fiercely on some fronts also illustrates IBM's steps to emphasize its businesses that bring better returns than the PC market, analysts said.
Dell officials say this week's announcements are consistent with Dell's strategies of exploiting the fast-growing business potential of the Internet and making heftier, more profitable computer systems for the most lucrative corporate accounts.
Art Russell, an analyst with Edward Jones & Co. in St. Louis, said he doesn't expect Dell to reinvent itself. But the company, based in Round Rock, is feeling pressure to boost revenue after its recent announcement that revenue growth slowed to 38 percent in the fourth quarter, breaking more than eight consecutive quarters of growth greater than 50 percent.
"To the extent that their growth is slowing, they've got to re-evaluate the markets they play in and target some of these other opportunities," Russell said.
That is partly behind Dell's recent suggestion that it will enter the sub-$1,000 PC business, a market it had no interest in a year ago.
Dell officials say these moves are evolutionary, not revolutionary.
"It's not like this is a new start. It's just execution of previously stated strategy," spokesman Peter Scacco said Thursday.
Still, Wall Street was disappointed with Thursday's announcement, which the companies said was the biggest of its kind, after analysts learned it was not a service link between Dell and IBM.
Speculative reports published early Thursday indicated the two companies would announce that IBM's huge service team, some 120,000 people strong, would support Dell's growing enterprise business of supplying powerful server computers to the world's biggest companies.
On Thursday, both stocks gave up impressive early gains. After climbing nearly $3 early, Dell closed up 93 3/4 cents at $81.87 1/2. IBM closed at $170.93 3/4, after reaching $176 earlier.
"We got snookered by this thing," said Lou Mazzucchelli of Gerard Klauer Mattison. "It's certainly not the level of impact that a service agreement or something else could have been."
"It's a parts agreement," said Jim Poyner of CIBC Oppenheimer after an IBM conference call with analysts that followed the announcement in New York. "$16 billion is not a contract number. It's IBM's estimate of what Dell would take over time."
IBM already supplies Dell with disk drives. The new agreement is much broader.
Although the agreement does not give Dell exclusive rights to IBM's technology, the two companies said it allows each to use the other's patented technology and opens the way for joint development of new products.
"I was surprised to learn this morning that $16 billion was the largest agreement ever announced," Lambert said . "It could even be a better partnership than even those numbers might suggest."
The agreement is consistent with Dell's strategy of leveraging available research-and-development investment in the PC industry rather than paying to develop what already exists.
IBM estimated that information technology services was a $460 billion business worldwide in 1998. It includes designing, installing and maintaining complex computer networks, which often run competing operating systems such as Windows and Unix. The systems typically link a big company's operations of tens of thousands of PCs in dozens of countries.
IBM, the world's biggest computer company, offers the broadest range of products in the industry, from the most powerful mainframe computers to software products. Its service business grew 21 percent in 1998 to $23.4 billion, contributing more than a fourth of the $81.7 billion in revenue. But for much of last year, IBM's PC business struggled, in part because Dell's direct model revealed the inefficiencies of traditional PC suppliers.
That had helped fuel speculation that IBM might ask Dell to assemble some of its PCs in Dell's highly efficient factories. Dell, the No. 2 PC maker behind Compaq Computer Corp., had revenue of $18.24 billion in its most recent fiscal year.
For years, Dell's efficiency and minimal inventory have allowed it to squeeze extraordinary profit from a relatively narrow hardware product line. It was only in 1997 that Dell entered the business for servers, which are higher-profit and more-powerful computers that handle the world's e-mail and bank ATM transactions and that feed data to multiple terminals in offices.
Shortly after that, Dell launched its line of workstations, which are souped-up desktop computers used extensively by engineers and financial analysts.
Lambert and Scacco said Dell's relationship with IBM will grow in ways that help both companies. Scacco was asked about analysts' expectations as well as the speculation that Dell would produce PCs for IBM.
"Nothing would surprise me," he said.
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