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To: PCSS who wrote (53834)	3/18/1999 10:14:00 AM
From: Kenya AA	Respond to of 97611

Dell Deal Just The Start? Big Blue's Big Parts Plan Date: 3/18/99 Author: Doug Tsuruoka for IBD IBM Corp. thinks the sum of its parts could make a pretty good whole. So the world's largest computer company is taking its parts lines and creating a business strategy from them - and it isn't afraid to sell to its own rivals in big-ticket hardware. Emboldened by a recent $16 billion deal to sell parts for PCs and large computing devices to Dell Computer Corp., IBM is lining up similar deals with a number of major firms. ''Dell was the coming-out party,'' said Dave Ernsberger, an IBM senior vice president of component sales to hardware makers. ''It's the first of what we hope will be many of these relationships.'' Ernsberger declined to identify other potential customers. But a source close to IBM says deals are in the works with U.S. firms Compaq Computer Corp., EMC Corp., Hewlett-Packard Co. and Sun Microsystems Inc. Potential overseas partners include Taiwan's Acer Inc. and Germany's Siemens AG, the source says. Focusing on computer parts is forming the third pillar of a three-way growth strategy for IBM being pursued by Chairman and Chief Executive Louis V. Gerstner, company executives say. Just as IBM put its weight behind nontraditional areas such as software and computing services in recent years, Gerstner wants to make supplying parts IBM's third big area of focus, Ernsberger said. Some analysts question how important the new strategy will be for IBM in the long run. But they add IBM - traditionally a maker of hardware such as mainframe computers - will benefit increasingly from newer areas such as services and parts-making in coming years. IBM won't say if future parts deals will be as big as its pact with Dell, which was announced March 4. But such sales are expected to swell IBM's bottom line. Executives at Big Blue say the Dell pact -which involves the sale of chips, displays and disk drives over seven years - realigns IBM and allies such as Dell in a new, Internet-based computer market. IBM is selling Internet-related parts to Dell that give computers better capabilities in electronic-business applications. Products include storage devices, switches and chip boards. Customer demand also is playing a role in Big Blue's move. IBM's clients say they want better access to the company's parts and an integrated approach in acquiring such items as Big Blue's e-business technology. IBM created a new parts-oriented technology group in August to handle this business, Ernsberger says. IBM first started selling parts to other computer makers in 1993. Company officials say parts sales have been growing by 40% a year. Although it's selling to competitors, IBM says it gets benefits from allowing Dell and other firms to use its technology. In addition to customer sales and better relationships with a variety of industry players, IBM gets key experience in supplying parts to clients. IBM officials add that technologies are starting to converge, and products such as cameras will use more computer parts. The company expects to sell display panels and tiny disk drives to Japanese and U.S. camera makers. ''IBM will not just sell parts to PC or (information technology) companies. The world's changing,'' Ernsberger said. ''You will see new customers -including camera companies like Canon and Kodak.'' IBM is ensuring its technology remains dominant by integrating its parts in the products of big companies like Dell, says Jeffrey Maxick, analyst with Madison Securities Inc. in Chicago. This is especially true in Web-related parts. ''The overwhelming idea is that IBM has the best technology out there,'' Maxick said. ''It's most important for these other companies to develop a relationship with the premier technology vendor.'' Analysts applaud the recent Dell deal but are skeptical about how much the new strategy changes IBM's prospects. Most agree the Dell deal will have a positive effect on the company's long-term performance, but it won't have an immediate effect on earnings. A big concern is that even with a new parts strategy, it takes a lot of sales to bring about dramatic changes in a company the size of IBM, which had $81.7 billion in 1998 revenue. IBM tends to grow earnings a step at a time rather than by leaps and bounds. Analysts doubt the Dell deal or others like it will do much to alter Big Blue's performance. ''It's good for IBM and it's good for Dell,'' said Gary Helmig, analyst at SoundView Technology Group Inc. ''This is not the remaking of IBM.'' IBM says its $16 billion parts pact with Dell is new business and doesn't include the roughly $500 million a year in parts it already sells to Dell. Some analysts are skeptical, saying the figure includes parts IBM already sells to Dell. ''It's not $16 billion. Only a portion of that figure is incremental business,'' said Chuck Jones, analyst with Salomon Smith Barney Inc. IBM insists the Dell deal consists of all new business. The company adds the final tally is expected to be well over $16 billion. But SoundView's Helmig says IBM will add a few billion dollars in annual revenue only if it strikes more parts deals. That's still a relative drop in the bucket for a company of IBM's size, he adds. Money from parts sales also takes time to work its way into IBM. That's one reason Helmig hasn't revised his estimate of $87.6 billion in revenue for IBM in fiscal 1999. Helmig also questions how far IBM can use its new parts strategy to reap profits from the Web. ''How many deals in e-business are you going to do? Everybody wants to be part of e-business solutions,'' he said. ''And how much of e-business is going to be incremental to the rest of (IBM's) sales?''

To: PCSS who wrote (53834)	3/18/1999 10:15:00 AM
From: rupert1	Read Replies (2) \| Respond to of 97611

Kumar was wrong about CPQ channel stuffing in the 4th quarter. He was wrong about GTW, wrong about DELL wrong about INTC. He is also apparently wrong about CPQ which he was recommending a couple of weeks ago as a buy in the mid-thirties, arguing that it could justify a multiple to give it a share price in the high fifties. The market discounts his view, but it will renew concerns. In the medium term it will cause more intense analysis of CPQ and wider knowledge that CPQ has not changed its original guidance and that it relies for perhaps only 50% of its revenues on PCs.

To: PCSS who wrote (53834)	3/18/1999 10:28:00 AM
From: Lynn	Respond to of 97611

Michael: >Hopefully some other analysts will come out to support their $.33 estimates OR CPQ >will respond I am sure a lot of investors are calling their brokers at ML et all this morning to ask why the analysts at _their_ full service brokerage house have higher 1Q estimates. The phone lines must really be buzzing and I expect to see other brokerage houses coming out and either reiterating their previous recommendation of CPQ or modifying their recommendation not to get in line with the .20, but the latest information they have. Compaq responding? I am not sure if they will since we are now in the quiet period. Although they can make an earnings warning new release, I do not know if they can make a release about either being comfortable about meeting earnings or expect to beat estimates. Any way, I would not expect any new release until the end of March or some time in April, when they know exactly how sales are going/have gone in March. Lynn

To: PCSS who wrote (53834)	3/18/1999 10:28:00 AM
From: Elwood P. Dowd	Read Replies (5) \| Respond to of 97611

Just talked to IR and was told that the quarter is back-end loaded, that the last 2 weeks of March are CRITICAL, and that they can warn anytime up to earnings release IF they see it as necessary. I was told that they have not changed guidance as yet, but it was emphasized that these 2 weeks are EXTREEMLY important and that the quarter hangs on this time. Because the last 2 weeks of March just started, they still don't know what to expect, so they can't say that they won't make the quarter and for the same reason, can't say that they will, although as I said, they HAVE NOT CHANGED GUIDANCE. It is quite clear to me, from the conversation, that they will warn if necessary, as soon as it could be determined that they would be going to fall short. I was told not to read the conversation either way, as they don't even know themselves yet what the last 2 weeks of March will bring. I did get the feeling that there is a greater sense of uncertainty than I haven't heard from them before. I was given no direction by IR, but hung up the phone feeling very doubtful. El