Industry Players See IBM/Lenovo PC Deal Good For Channel, Bad For HP And Dell

Symon Chang, president and CEO of Fremont, Calif.-based motherboard and add-on card vendor Tyan Computer, drew a parallel between IBM's move and RCA's decision to exit the TV industry.

"I look at what happened to the television industry and its branding," said Chang. "RCA invented the television, and eventually RCA was sold to Thomson. That was the end of an era. IBM's selling of its PC business to Lenovo, that's the end of another era."

Chang said he would not be surprised if Hewlett Packard follows suit and exits the PC business in the next couple years, and even expects Dell to move out eventually due to low PC margins. "But Dell in the next 10 years will dominate the notebook PC business in North America," he said. "It will not go away. In Europe, the top notebook PC brand is Acer. Acer is run by an Italian guy. It's a sign they want to dominate the European market. If Lenovo takes over IBM's Personal Computer Division, it will dominate in China."

The big losers in the deal are HP and Dell, which is good for the channel, according to a number of industry officials, many of whom compete with those vendors and who would most likely want to see them lose market share.

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Rudi Schmidleithner, president of San Jose, Calif.-based Acer America, said that the channel has been hurt by vendors such as HP and Dell going direct, but the deal will help IBM because of its channel ties.

"IBM is the only major vendor to do the majority of its business through the channel. . . . If IBM and Lenovo does business as usual, from my point of view, it would be the best thing for the channel," Schmidleithner said.

Lenovo is paying a lot for IBM's loss-generating business, but if the company and IBM can gain synergies, reduce costs, and continue to manage the channel, solution providers will not be affected much, said Schmidleithner. In fact, he said that Acer sees the move as an opportunity to take share from HP and Dell, but not from IBM.

"For Acer, there is a lot of business in the U.S. for us to grab," he said. "But I don't want to grab it from a strong channel player. I want to grab it from direct vendors (like HP and Dell). That is our value. . . . We want to have a healthy, strong VAR society. If the channel is weak, my strategy is weakened. If the channel is strong, I'm strong. We want to maintain a strong channel."

Larry Singer, senior vice president and the strategic insight officer at Sun Microsystems, said that by shedding PCs, IBM is taking one more step on a path to focusing on services. That trend was started in 1994 when Lou Gerstner became chairman and CEO of IBM.

"Several of us who do strategy here (at Sun) found the move to be a validation of what we have been saying, that the PC is not the center of the computing architecture, that the network is the center, and there are many other devices out there," Singer said.

The move leaves HP facing a flat PC market while stuck in the middle between an IBM, which will no longer have a PC business, and a Sun, which never has a PC business but instead which focuses on Java-based devices and their connection to the Internet, said Singer.

"HP is stuck in a bad business," he said. "In fact, it bought Compaq to get stronger in that business."

Combining low-cost operations with a brand name like IBM could be a big boost to IBM's PC business, said Tiffani Bova, senior director of SMB channel sales and marketing at Gateway.

In fact, said Bova, that is the very strategy that brought Gateway and eMachines together in their merger of this past summer.

"There is something to be said for the very cost-effective, operations-effective business," she said. "They are strong competitors when combined with a strong brand. Like us with eMachines. That philosophy caught on with eMachines with its very operations-efficient, with a strong distribution, and with the strong brand awareness of Gateway."

The new Lenovo would do well to take advantage of its dual legacy to offer the channel more margin, said Bova. "When you can drive operation costs out of the business, you should share it with your channel partners," she said. "That's what Gateway is just starting to do."

While some industry observers said that Intel, which supplies processors to both Lenovo and IBM, could be hurt because of Lenovo's AMD relationship, an Intel spokesperson said the company is watching the situation. "These two companies have made a business decision and are going forward," the spokesperson said. "We will continue to work with both of them."

Many solution providers expect the merger to be neutral to their business.

Stephen Moll, director of operations at Computer Technology Link, a Portland, Ore.-based custom system builder, said it should not have any effect, unless a huge new sales blitz results in falling prices.

"I don't see IBM out there much in PC bids," said Moll. "I see HP and Dell more. If the deal brings Lenovo more presence in the U.S. market, it could be an issue. But it will take time to build trust. But half the (customers) will probably be oblivious to the change, if they keep the same name and infrastructure."

IBM has already abandoned much of its PC business, said Dave Goldsmith, president of Sapphire Systems, a Roselle, Ill.-based HP and IBM solution provider. "For us, it's pretty much a battle between HP and Dell," Goldsmith said. "In the open market business, with bids, I don't see IBM at all."

One concern expressed by some industry observers is the potential for a culture clash between Lenovo's Chinese management and the American management coming from IBM.

However, Acer's Schmidleithner pointed to his own company, which is based in Taiwan but is now headed on a worldwide based by an Italian and in the U.S. by an Austrian, as an example of how to prevent such a clash.

"I hope the Chinese people let the Americans run the business," Schmidleithner said. "We have that in Acer. Our strategy was developed in Europe. Management is done in Asia on a strategic basis, but the business is run in Europe and America."