IBM to provide $6 billion in services to Dell

7-year agreement builds on earlier $16 billion contract

September 28, 1999|By BLOOMBERG NEWS

NEW YORK -- International Business Machines Corp. won a contract yesterday to provide $6 billion in services to Dell Computer Corp. during the next seven years, enhancing Dell's effort to sell sophisticated computers to corporations.

The No. 1 direct seller of personal computers will offer its U.S. business, government and education clients maintenance and installation through IBM's Global Services unit starting next year. The agreement builds on a $16 billion pact in March that calls for Dell to buy parts from IBM, the world's top computer company.

The closer relationship helps Dell expand in the market for high-priced equipment such as servers and data storage and lets IBM capitalize on its technology and reach more customers.

With yesterday's agreement, Dell gets a broader range of services for the Unix computer operating system, favored by many companies.

"It was almost imperative for Dell to get Unix expertise," said Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray. He expects more collaboration between the two companies.

Dell shares rose 38 cents to $44.06 in trading of 21.7 million shares, making it the third most-active U.S. stock. Dell has been the best performer on the Standard & Poor's 500 index in each of the past three years.

Shares of IBM, the biggest provider of services that help companies set up and run their computer systems, fell $2 to 123.

While Dell has its own services business, it focuses on systems that run on Microsoft Corp.'s Windows NT operating system, not the competing Unix software.

Services account for about $2 billion of Dell's $18.2 billion in annual sales. Vice Chairman Kevin Rollins said the business could increase to as much as $10 billion.

"They can't effectively build a services business in the near-term," said Tim Ghriskey, a portfolio manager for Dreyfus Corp. "It's more effective to hire IBM."

By joining with IBM, Dell can attack rival Compaq Computer Corp. of Houston, the No. 1 personal computer company. Compaq acquired Digital Equipment Corp., a maker of servers and mainframes, in June 1998 for about $9 billion.

"This is the nail in the coffin for somebody like Compaq," Kumar said. "It completely neutralizes Compaq's DEC acquisition."

The agreement, which covers Dell's desktop, notebooks, workstations, network servers and data storage machines, is one of the biggest information technology pacts this year. The two companies will offer the services to U.S. customers initially, and gradually expand it globally next year, Rollins said.

Rollins played down the impact on Dell's other service providers, Unisys Corp. and Getronics NV, which bought Wang Global in June to add to its services business. He said Dell wants to offer customers a choice.

Ghriskey, though, said the IBM agreement probably limits the new business of the other companies.

Pub Date: 9/28/99

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