Should You Stick With IBM's PC Division?

The New York Times

Fair enough. But the deal isn't quite that nice and neat for the government sector. Many buy the assurances of the IBM PC division's longevity under new ownership; however, others take issue with the fact that compliance with the Trade Agreements Act (TAA) will be maintained by what could be regarded as stopgap loopholes. Chantilly, Va.-based solution provider CWPS, for one, is re-evaluating a number of government contracts as a result of the deal.

According to the TAA, the government can spend taxpayers' money with certain countries that are considered friends to the United States and whose products, therefore, qualify for an exception to the government's preference to acquire only domestic end-products. Among the countries not privy to such exemptions are North Korea, Iran, Iraq and Lenovo's home base of China.

In fairness, IBM says government VARs and customers won't see TAA compliance compromised at all because the PC manufacturing process won't change. The majority of products will continue to be appropriately assembled in the Raleigh, N.C., facility. And logistically speaking, IBM will remain on the GSA Schedule until the actual transaction occurs in the second quarter, at which time Lenovo will likely follow a GSA Schedule of its own, says Bob Galush, vice president of product marketing at IBM.

But the question remains: Will government customers and solution providers be willing to shoulder the risk associated with their government contracts being linked to a blacklisted country? And if so, should they?

So far, channel reaction has run the gamut. Plenty, such as Chantilly, Va.-based GTSI and McLean, Va.-based iGov, say it's a nonissue, even good news in the long term, because the division will no longer exist in the shadow of its enterprise hardware brethren. Instead, it will emerge as the golden child of the now third-largest PC business in the world. Others, including Clarksburg, Md.-based Daly Computers and Arlington, Va.-based Advanced Computer Concepts (ACC), are seeing customers take a cautionary approach moving forward, but aren't jumping ship just yet. Still others, like Mission Viejo, Calif.-based Holcomb Enterprises, are getting requests for exit strategies from customers and finding alternatives to contracts currently in negotiations. The solution provider already eliminated IBM from the running for a project requiring up to 50,000 laptops for military field hospitals, and has no intention of doing business with the new organization down the line--or potentially with IBM at all, which at one time made up roughly 10 percent of Holcomb's business.

Ultimately, the rub lies in how TAA compliance is achieved or, more specifically, what role the Raleigh plant will actually play in the manufacturing process and how that process could be scrutinized by the government down the road. Companies often get the TAA stamp of approval by acquiring parts from other countries, then assembling end-products in the United States or another sanctioned locale. You get this part from China, and that part from elsewhere, and you put it all together in Raleigh to get the official OK. Nothing illegal or uncommon about that. But whether the government will get tired of that kind of skirting around TAA rules and crack down is anybody's guess. If they do, associations with China could feasibly be among the first squashed.

Granted, this is all cautionary--perhaps even overly so. But as PCs and laptops continue down the commodity road, some government customers might change strategies, forcing VARs to opt for more solid ground. Time will tell. Regardless, it's certainly easy for IBM to declare "business as usual" for a division that will no longer be its problem in five years' time.