IBM story fro CNNfn: Doesn't look like they will be ceding this space to anyone. On the other hand, perhaps their "retooled strategy" will be to exit this space altogether? I'm sure the perennial Dell doomsayers will start pounding on the competition that IBM will give dell in the direct space. I think Dell is too far ahead at this point for IBM to present a real threat anytime soon, but we could all do well to not write Big Blue off in the PC business just yet. JMO
Cheers
Alohal
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PC pioneer plans to move its retail focus
to the Web after this holiday season
October 19, 1999: 5:08 p.m. ET
NEW YORK (Reuters) - Personal computer pioneer
International Business Machines Corp. on Tuesday
said it will stop selling its consumer PCs in U.S.
stores in early 2000 and redouble its focus on
Internet sales.
IBM (IBM) left the door open to resume sales in
the fiercely competitive U.S. retail arena, once it
develops a profitable formula for selling consumer
desktop PCs on store shelves, where prices have
plunged over the past year, a company
spokeswoman said.
IBM sells its desktop consumer PCs under the
brand name Aptiva.
"We plan to pull Aptivas out of the U.S. retail
channel in the U.S.," IBM spokeswoman Trink
Guarino said.
"Once we come up with that formula, we will be
back," said Guarino, a spokeswoman for IBM
Personal Systems Group, the unit that oversees
sales of IBM personal computers and includes
business PCs, ThinkPad notebooks and more
powerful PC servers.
The actions are the latest by the Armonk,
N.Y.-based company to set its products apart from
lower-priced consumer models in the United States
and shift a greater percentage of its business to
direct sales over the Web, as rival PC maker Dell
Computer Corp. (DELL) has done.
The story was first reported by ZDNet's online
news service on Monday.
In the past year, IBM has slid to become the
world's No. 3 vendor of PCs of all types, including
business PCs, behind No. 1 ranked Compaq
Computer Corp. (CPQ) and Dell, the fast-growing No.
2. In 1998, IBM's PC unit lost nearly $1 billion and, in
the 1999 first half, it lost another $239 million.
Sam Albert, an industry consultant and ex-IBM
marketing official, said the moves appeared aimed at
competing profitably in consumer PC markets, not
exiting the business. IBM Chairman and Chief
Executive Officer Lou Gerstner would be loathe to do
that, he said.
"Mr. Gerstner is not going to be a shoemaker who
goes barefoot," he said.
IBM sells its Aptiva PC line at more than 70 U.S.
retailers, including chains such as Best Buy (BBY),
Circuit City Stores (CC), and OfficeMax (OMX).
IBM plans to sell out its current line through the
upcoming holiday season, then pull back from retail
while it retools its strategy, she said.
Then in the first quarter of 2000, the computer
maker plans to make a broad push for consumer PC
sales via its online store at www.ibm.com, aided by a
$20 million advertising campaign, Guarino said.
Jeff Cross, another IBM spokesman, said the
company gets higher margins selling desktop PCs to
consumers online. By contrast, margins on its
popular line of ThinkPad notebooks sold through
retail outlets remain strong, he noted.
"We are the leading provider of e-business, so we
are going to put our money where our mouth is,"
Cross said. The company plans to sell its Aptiva
consumer desktop PCs through its own ShopIBM
site and via online retailers such as Value America
Inc. (VUSA).
Guarino stressed that Aptivas continue to sell
well through retail outlets internationally, where
pricing dynamics differ and IBM's buyer cachet
remains strong. "Aptivas are selling well
internationally," she said. "They just are not
differentiated on store shelves in the U.S."
Retail PCs now sell on price, not features.
Three-quarters of PCs sold through U.S. retailers in
August were priced below $1,000, with a majority of
those below $600, according to U.S. retail data from
Ziff Davis' Infobeads market research unit. IBM had
11.3 percent of the U.S. retail market that month, far
behind market leaders Hewlett-Packard Co. (HWP)
and Compaq.
As a result, the world's top supplier of computer
hardware, software and services, has struggled in
recent years to turn a profit in the PC business it
helped pioneer two decades ago.
Earlier this month, IBM said it would trim 5 to 10
percent of the jobs in its PC group, or 500 to 1,000
jobs, as it folds its consumer line into its broader PC
operation in a bid to restore the business to
profitability. As part of that plan, it consolidated
consumer PC marketing with its commercial sales
and marketing teams to create a more unified
strategy.
The spokeswoman said there will be no changes
in IBM's commitment to service and support Aptiva
PCs sold through retail or the Web adding that the
changes mainly affect the way new PCs are sold.
IBM plans to re-enter selected U.S. retail outlets
once it determines a profitable strategy, she said.
Shares of IBM fell 1/4 to 106-3/4 on the New York
Stock Exchange Tuesday.
IBM is set to report third-quarter results
Wednesday following the stock market close.
Analysts' consensus estimate is for 90 cents per
share compared with 78 cents per share in the year
ago third-quarter, but whisper numbers circulating on
Wall Street range upward to 92 cents or more.
Still, the stock is trading at its lowest levels since
June amid investor concerns over sluggish
performance of both its PC and big computer
systems business and potential slow growth heading
into 2000, as customers fix year 2000 glitches in
older computer equipment instead of making major
new purchases.
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