A few weeks ago, I suggested that IBM might give up making PCs itself.
There is an even greater chance this will happen now as the vendor's services business is continuing to generate more of its sales and, most importantly, its profits.
IBM is expecting 20 per cent growth in its services business over the next year and is now generating nearly one third of its business from this area. It is generating a considerably higher proportion of its profits from services and there must now be a strong possibility it will move further in this direction.
In Q1, services business grew by 28 per cent to about $5 billion. Next year, IBM CEO Lou Gerstner predicts it will be the biggest contributor to IBM's profits. The PC business is a pain in the neck compared with services. IBM's battle-weary shareholders want results and if staying in PCs means earnings are going to suffer, they will want out.
Meanwhile, there is another threat brewing. Dell's moves in the services area last month were swift and shrewd. Compaq had better watch out. Dell has signed deals not just with Unisys or Wang but both. And to cap it all, Dell opened two applications porting centres to get mid-range software running on the latest SMP and 64-bit Intel platforms.
If Dell can now convince users it is able to offer the pre and post-sales support on these products, why wouldn't they buy them? Computacenter CEO Mike Norris told me when I interviewed him last year that Dell is his biggest competitor. It just got bigger and Compaq and its dealers need to respond.
Yes, Compaq now has Digital and that's a powerful weapon. But Digital is yesterday's news and tomorrow's will be 15,000 or more lay-offs from that company. That won't sound good. Compaq needs to be more competitive and cut the cost model - that's why it is now going to assemble in the channel. Next, Compaq needs to do something special in the services market and it needs to give dealers something to fight with as well.
Dell looks determined to make it in this mid-range market and who knows what it has got up its sleeve for the next few weeks. What if it strikes a deal with another maintenance company, or even IBM or HP? Things that were once unthinkable could happen now.
The PC landscape is changing fast. NT looks to be unstoppable and so the battle is bound to spill over into the mid-range range market, which is where the real margin and the real value is for many dealers. Dell is now a very real threat to that business.
Someone, somewhere, is going to have to use their imagination if the reseller channel is going to be protected from the ravages of this company.
You have to admire Dell - it is an incredibly tenacious and determined company and, if we can dare to admit it, Dell is probably giving users exactly what they want. Perhaps that is why it is doing so well.
Simon Meredith is a freelance IT journalist.
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