Shifting Strategies Among PC Players

Dell and HP should make price cuts and trade up offers now that IBM is pursuing its Power/Linux strategy, say analysts.
Posted December 10, 2004
By

Michael Singer


Strategies are shifting among other PC vendors as IBM's sale of its PC business to Chinese PC maker Lenovo starts to play out.

Several research firms are advising clients to review their desktop needs, as both HP and Dell are sure to offer enticing trade-up deals to IBM's existing customers concerned about a new provider taking over.

"Companies should use potential risks of the deal to negotiate lower prices or better service levels from IBM," Martin Reynolds, group vice president and Gartner Fellow, said in a research note. "Disruptions are inevitable. IBM will likely be responsive to fixing problems, but customers should ensure that they have the necessary competencies to switch vendors quickly if IBM's responsiveness drops."

The $1.25 billion cash and stock deal between Big Blue and China's leading PC maker Lenovo signals more than a shift among players as Lenovo heads for the number three slot among PC makers. IBM's 18.9 percent stake in Lenovo, and its plan to be its preferred services and customer financing provider, positions IBM for more influence in the rapidly expanding IT market in China.

Lenovo will have a combined annual PC revenue of approximately $12 billion, and will be the main supplier of PCs to IBM.

As IBM noted this week, the transaction will dramatically strengthen Lenovo's global presence in the fast-growing notebook PC marketplace.

IBM will have a sales force of about 30,000 to provide support and services for the Lenovo products, including IBM's popular ThinkPad product lines.

Stephen M. Ward, IBM's senior vice president and general manager of its personal systems group, who is slated to head up the new company, addressed expected customer concerns about Lenovo's commitment to service Tuesday. "Our two companies are a perfect fit, sharing a common cultural commitment to innovation, customer service and shareholder value," he said as part of the announcement.

Ward also noted that Lenovo would pursue an aggressive yet prudent growth strategy with an industry leading international management team of IBM's and Lenovo's existing senior executives and technology managers.

"Suppliers and competitors will both feel the pressure from this new company," Martin Gilliland, principal analyst for Gartner's Hardware and Systems research group, said in a research note.

"Competitors will have to accept that the Chinese market will become even harder to crack, while international markets will now include a player with a cost structure that can compete with Dell's."

Gartner's prediction that three of the Top 10 PC manufacturers -- especially IBM -- would exit the market by 2007, prompted widespread debate. A survey published by Forrester Research Thursday suggests nearly 50 percent of current IBM PC prospects would consider another brand.

"Our research also indicates that potential IBM defectors are split evenly between Dell and HP, giving HP an opportunity to build on recent momentum to pick up market share," Forester analyst and author Simon Yates said in his briefing to customers.

The firm's data showed that 63 percent of firms still buy desktop PCs for more than three-quarters of their users, with 49 percent choosing Dell as their primary supplier. Another 24 percent said they buy from HP, with 16 percent choosing IBM. In laptops, 40 percent chose Dell, HP and IBM each garnered 24 percent.

"HP still has soup-to-nuts under one roof. That is a good strong testament," Roger Kay, vice president of client computing at IDC, said in a statement. "Dell has a strong PC division, but not in the same business services area as before."






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