More on the IBM Deal .. nail in the coffin for CPQ says Kumar
IBM Will Provide Services to Dell Computer
by Bloomberg News / September 28, 1999
The International Business Machines Corporation won a contract to provide $6 billion in services to the Dell Computer Corporation during the next seven years, enhancing Dell's effort to sell sophisticated computers to corporations, the companies said Monday.
Dell, the No. 1 direct seller of personal computers, will offer its business, government and education clients in the United States maintenance and installation through IBM's Global Services unit starting next year. The agreement builds on a $16 billion pact the companies reached in March that calls for Dell to buy parts from IBM, the world's largest computer company.
The growing relationship helps Dell expand in the market for high-priced equipment like servers and data storage devices and lets IBM capitalize on its technology and reach more customers. With Monday's agreement, Dell gets a broader range of services for the Unix computer operating system, favored by many companies.
"It was almost imperative for Dell to get Unix expertise," said Ashok Kumar, an analyst with U S Bancorp Piper Jaffray.
While Dell, which is based in Round Rock, Tex., has its own services business, it focuses on systems that run on the Microsoft Corporation's Windows NT operating system, not the competing Unix software. The services business accounts for about $2 billion of Dell's $18.2 billion in annual sales; the company's vice chairman, Kevin Rollins, said the business could increase to as much as $10 billion.
"They can't effectively build a services business in the near term," said Tim Ghriskey, a portfolio manager for the Dreyfus Corporation. "It's more effective to hire IBM"
By joining with IBM, Dell can attack the rival Compaq Computer Corporation, the No. 1 personal computer company. Compaq, which is based in Houston, acquired the Digital Equipment Corporation, a maker of servers and mainframes, in June 1998 for about $9 billion.
"This is the nail in the coffin for somebody like Compaq," Mr. Kumar said. "It completely neutralizes Compaq's D.E.C. acquisition."
The agreement, which covers Dell's desktop, notebooks, work stations, network servers and data storage machines, is one of the biggest information technology accords this year. The two companies will offer the services to United States customers initially, and gradually expand it globally next year, Mr. Rollins said.
Mr. Rollins played down the impact on Dell's other service providers, the Unisys Corporation and Getronics N.V., which bought Wang Global in June to add to its services business. He said Dell wanted to offer customers a choice.
Mr. Ghriskey, though, said the IBM agreement probably limited the new business for the other companies. Samuel Palmisano, IBM's senior vice president who heads Global Services, said the pact could top $6 billion depending on how Dell's clients respond.
"Our ability to satisfy Dell's customers as well as Dell's ability to sell these services could make the agreement actually go bigger over time," he said.
Mr. Palmisano, regarded by many as the heir apparent to IBM's chief executive, Louis V. Gerstner, is leaving the services unit Friday to head the computer server business.
"Maybe there will be some big deals coming in the fourth quarter that I'll still have my hands on," he said, declining to elaborate.
IBM's Global Services unit has been the fastest-growing business for the company, which is based in Armonk, N.Y. Services sales, including maintenance contracts, climbed 15 percent, to $8 billion, during the second quarter. Services sales rose 24 percent in the first quarter. |
