IBM-Lenovo PC Deal Could Be Boon For Distributors

"It's a good thing because it could lead to lower prices. It could be something where potentially we could be more competitive at the lower end," said a distribution source who asked not to be named.

IBM reportedly could sell its PC business to Lenovo as early as next week, sources said.

Another distribution executive who requested anonymity said such a deal could reinvigorate the systems business. "In this case, IBM PCs have been primarily sold only to corporate America," said the executive. "If a lower-cost provider can drive capacity and be a strong channel advocate like Acer has been, this could have a long-term positive impact on distribution and the channel vs. Dell."

Distributors and solution providers have had great difficulty making substantial margins on PCs, and an IBM sale of its PC business to Lenovo could provide more incentive, the executive said.

"The channel needs more vendors to provide solutions that offer both margin and technology. The key will be whether Lenovo brings in the right, key people in the U.S. who understand and support the channel."

Ingram Micro would be prepared for whatever changes occurred resulting from a potential sale, but the Santa Ana, Calif.-based distributor has no knowledge of a possible transaction, said Paul Bay, vice president of vendor business management at Ingram Micro U.S.

"As a strategic partner, we're confident IBM will keep us abreast of any changes to the company's business model. Should any changes occur, we will work quickly to communicate and manage those changes with our solution provider customers," Bay said.

Top executives at Synnex and Tech Data were in regularly scheduled meetings all day and couldn't be reached for comment, spokespersons at the companies said.

An IBM-Lenovo PC deal could hurt the channel in the short term but be a benefit in the long run, said Brian Alexander, vice president of equity research for technology distribution at investment firm Raymond James and Associates.

"In the short run, clearly there will be market share up for grabs. If Dell capitalizes on that, it's obviously bad for the channel. And to the extent that HP grabs share, it's also a slight negative because IBM was a more channel-friendly vendor," Alexander said.

But Lenovo historically has adopted an indirect sales strategy, which is good news for distributors and solution providers, Alexander noted. "I don't think they would disrupt [IBM's] distribution strategy. As a result, I think it's neutral or modestly positive because Lenovo is a lower-cost player and can better compete with the likes of Dell and HP direct," he said.

If an IBM-Lenovo deal indeed goes through, it would come at a time when PC sales have peaked, according to Alexander.

Worldwide PC unit growth for the four sequential quarters beginning with third quarter 2003 through second quarter 2004, compared with the year-ago periods, was 17.5 percent, 15.8 percent, 17.3 percent and 15.5 percent, research firm IDC reported. But third-quarter growth this year fell to 11.9 percent, and projections for 2005 are in the 10 percent to 11 percent range, according to IDC.

"It's still good growth, but we're coming down from the mid to high teens to low double-digit growth," Alexander said.

Distributors should be celebrating the possibility of an IBM PC business sell-off, said Martin Wolf, a former distribution executive and president of Martin Wolf Associates, a boutique channel, software and services investment firm based in San Ramon, Calif.

"Ingram Micro, Tech Data and other distributors should be cracking open the champagne bottles," Wolf said. "There is a new sheriff in town. This could change everything. This all, of course, assumes they have the right management team that supports the channel and sound integration of the IBM business. This reinforces the value of people, such as solution providers, who touch customers.

"This is the next best thing since Netscape to happen to distributors and the entire channel," Wolf added.

"Today for PCs there are two choices: HP or Dell. For most distributors and channel partners, Dell is not an option. IBM recently has not been a major player in PC and notebook distribution but has a great brand. When you combine that with the aggressiveness and the manufacturing acumen of Lenovo, you have the likelihood of creating a real alternative."

At least one distribution source felt IBM's buyer would face a tough challenge maintaining IBM's marketshare in the United States.

"The IBM name has a Medallion type thought process to it. When you lose the Medallaion name off the PC, I think you'll see a major share shift," said the distribution source.

The three players that stand to benefit the most from an IBM sale are Dell, Hewlett-Packard and Acer, in that order, said the source.

"I think Dell wins again. It's tough to make a name in the North American market. Acer has had difficulty but they are finally making some headway in the portable arena. I think you'll see distributors more focused on the HP and Acer side [than on IBM's buyer]. It'll be a real tough play for whoever bought them to make it work."