Calm Down this is what WSJ had to say a minute ago!
IBM Is Planning to Sell Some Servers
Directly to Customers to Fight Rivals
By RAJU NARISETTI
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- International Business Machines Corp. plans to sell its personal-computer "servers" directly to some big customers, cutting out distributors in a strategic shift designed to battle low-priced rivals.
The move, which IBM plans to announce Friday, signals a new willingness by the computer giant to openly embrace a hybrid distribution strategy instead of putting most of its emphasis on selling through distributors and wholesalers. But in opting to use its large sales force to push its popular NetFinity servers, IBM risks unsettling its sales-channel partners, some of whom will lose sales.
Yet as rivals such as Dell Computer Corp., which takes orders directly from customers, as well as Compaq Computer Corp. continue to win more corporate business, IBM has been forced to fall back on its direct-sales force, which until now has concentrated on selling more powerful computers such as mainframes.
Senior IBM executives had been mulling options in recent months to step up sales at its perennially underperforming PC unit. Some analysts speculate the NetFinity move could be a precursor to IBM adopting some form of direct sales for its desktop and notebook computers.
Gerstner's 'Very Big Priority'
The issue of PC servers, which are souped-up PCs that control networks of other personal computers, jumped to the front burner last month after candid remarks by IBM Chairman Louis V. Gerstner Jr. about the business. "We missed this one so badly that I don't even like to think about it," Mr. Gerstner told analysts. "We let Compaq run out and grab this PC-server business while we were worrying about protecting our midrange systems." Mr. Gerstner went on to tell the analysts that NetFinity "is a very big priority for us," adding that IBM is going to "prove" it can "put [market-share] points on the board."
If IBM doesn't make a concerted effort to push NetFinity, it runs the risk of losing out on a hot PC-server market. More and more companies are using the machines, coupled with Microsoft Corp.'s Windows NT operating system, to run critical applications.
While NetFinity sales have been strong in recent months, IBM significantly lags behind Compaq, which has a 31% share of the global PC-server market, compared with IBM's 13% share. Moreover, only about 20% of IBM's server sales are to new users or for new applications, while the industry average is around 45%.
Analysts estimate IBM's PC servers generated $1.4 billion out of its PC unit's 1997 revenue of $12.7 billion. IBM generated total revenue of $78.5 billion last year.
Restructured Sales Force
The decision to directly sell PC servers culminates more than a year of behind-the-scenes effort in which IBM developed a new line of powerful, competitively priced machines and restructured its sales force, which used to be brand specific, into one that is now compensated for selling any of the four IBM server brands.
The sales shift "is not about trying to out-direct the direct vendors," said David Thomas, general manager of IBM's PC unit, who began briefing analysts about the move Thursday. "It is thinking of what is the next evolution here in terms of how product, service and support are going to be delivered to the customer."
Mr. Thomas concedes that some distributors will lose hardware sales. But he added that "we both understand that for us to be successful in this space, we have to have a different approach."
Some distributors agree. "If it helps make IBM sell more product, that is good for me," said John McKenna, chief executive of Entex Information Services Inc., a major IBM reseller that had been briefed about the NetFinity plans. Mr. McKenna noted that PC servers "require a fair amount of customization" and said IBM's move could drive more demand for services provided by his company.
IBM is telling its distributors that it still expects to use them to supply the product to many customers, though some global buyers are expected to look to IBM for both sales and support services.
Four 'Master Distributors'
In a related move, IBM is designating at least four large companies as "master distributors," giving them the option to assemble IBM PCs, including the microprocessors, based on actual orders. The distributors IBM has initially picked are Ingram Micro Inc., Pinacor Inc., Inacom Corp. and Tech Data Corp.
Anthony Ibarguen, president of Tech Data, said he understands IBM's server decision. "We think it would be impossible for IBM to replicate our cost level," said Mr. Ibarguen, who is expecting IBM, Armonk, N.Y., to fulfill a lot of the direct-sales orders through wholesalers like his.
Still, Mr. Ibarguen worried that IBM's move will cause confusion. "IBM has a very large direct-sales force and thousands of channel partners," said Mr. Ibarguen. "Somebody is not going to get the story 100% right and the customer is going to be disappointed."
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