Right off hand I would think this is a pretty good idea, I dont like the acquisition part but an alliance/merger sounds like a positive for Dell.
Here is a little more on Dell/IBM.
March 15, 1999
IBM pact a big win for Dell's server systems
Tom Fowler Austin Business Journal Staff
There's no shortage of far-flung theories surrounding the $16 billion equipment deal recently announced between Dell Computer Corp. and IBM, but most analysts agree the accord will be a big boost to Dell's growing high-end computer systems.
The agreement has Dell purchasing a variety of components from IBM over the next seven years, and includes a long term technology sharing pact. But some pundits spent the past week alternately scratching their heads over what they saw as simply a huge purchase order and cooking up a subplot to weave behind the agreement.
Early reports said the deal was really a disguise for a services agreement, while others said its a precursor to IBM outsourcing its line of personal computers to the Round Rock company.
However, the kind of equipment IBM will provide Dell special access to in coming years -- high-capacity disk drives, network adapter cards, flat-panel displays and custom chips -- represents a clear coup for Dell's growing line of servers and workstations.
"I think if this does anything, it adds credibility to Dell's enterprise group to have structured a deal like this with Big Blue, the largest seller of high end servers in the world," says Jerry Sheridan, an analyst with San Jose, Calif.-based Dataquest. "IBM is getting access to Dell customers, who they would never have seen before, but I believe Dell is getting a significant benefit in that it would get access to IBM technology well ahead of the general population."
Just four years after moving beyond the home computer market and into the higher margin world of servers, Dell holds the No. 2 spot in the United States' PC-based server market, behind Compaq, with about a 19.6 percent share, according to data from International Data Corp. Worldwide, Dell ranks fourth for PC servers, growing to 11.3 percent share.
As importantly, those rankings have dollars behind them. In 1995, Dell started with enterprise market sales of about $129 million. By 1996 that number had climbed to $289 million, and by 1997 it reached $1.028 billion.
By 1998, Dell's enterprise system sales more than doubled to $2.19 billion.
While Dell's growth in the field has been stellar, access to IBM's top-ranked components could make it even better, analysts say. They say the plans for sharing research and development between the two companies would give Dell a significant advantage over top rival Compaq.
"It's more than cross-referencing patents, but collaboration on technology," Tom Beermann, a spokesman for IBM's new technology group, says of the agreement. "We will be working much more closely with Dell in developing future products, so they will know in advance where we're headed in storage, chip and network technology and will be able to plan for it."
Dell will also be paying less for those new technologies in its systems than it has in the past, thanks to the waiving of the usual patent use fees, says Paul Mansky, an analyst with U.S. Bancorp/Piper Jaffray.
"That will save Dell significant costs at least for the short- and mid-term," Mansky says.
IBM has provided Dell with disk drives and other components to a limited extent in the past, says Dell spokesman T.R. Reid, but the new agreement goes far beyond that.
Manufacturers like Dell have traditionally spent much less money on research than technology companies like IBM and Motorola, but a closer working relationship with IBM makes that difference less significant.
"If the door from Dell to IBM was slightly ajar in the past, this agreement pushed it completely open," Reid says. "Maybe it actually knocks it off the hinges."
Sheridan says technology in IBM's Netfinity line of servers would give Dell a particular advantage over Compaq in that it would allow Dell's NT-based equipment to work effectively with some of the most powerful systems on the market, including IBM's own line of AS/400 servers.
"For servers in the Intel/NT environment there's very little to distinguish the systems from one another from a technology perspective," Sheridan says. "But I could see Dell really expanding on that with that kind of IBM technology."
Dell would not have exclusive access to any of IBM's technology, however, says Beermann, as the company is working on similar agreements with other major manufacturers.
"One of the three areas of growth for IBM have been identified as services, software and sales of advanced technology products," Beermann says. "We plan on getting our products out there through other channels as well."
Mansky says the agreement between the two companies, which he characterized as bitter rivals in the past, opens up a whole new world of possibilities for future agreements.
"I think it's entirely possible that Dell may take over, through an [original equipment manufacturing] relationship, the making of IBM's desktop computers," Mansky says. "You need to stick with your core competencies, and IBM's is in the high-end technology and Dell knows how to put together the desktops."
The agreement does not appear to have an impact on the operations of Dell's other Central Texas-based suppliers, company officials say, and is not likely to lead to an expansion of IBM's Austin operations.
Week of March 15, 1999 | Leading Stories | Top of the page
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