IBM dealers hit by rebate aftershock

Exclusive Distributors forced to pass on price increases to resellers as vendor cuts margins.

IBM indirect resellers' margins have been eroded further as they bear as vendor cuts margins. the brunt of price increases on PCs, following the vendor's move to reduce the rebate on hardware sales to its distributors.

The rebates on PC sales were reduced from 20 per cent to 17 per cent after IBM revised its Ts&Cs this year. But to retain a level of profitability on the IBM PC range, distributors have been forced to pass on the effective rise in costs to their resellers.

Channel insiders said Big Blue's decision was based on the premise that the market for PCs was expanding and the incentive to move the range was no longer required.

However, PC figures from IDC published last week appeared to contradict this as they revealed that IBM lost market share in the UK and Germany during the fourth quarter of 1998.

Andy Gass, UK deputy managing director of Computer 2000, confirmed the reduced margins and added that, as a result, the distributor had to reduce the discount it offered its resellers.

'It was landed on us on a very short time scale and we were given very little notice. We've had to change the way we look at the IBM franchise and to maintain our profitability on it, we have also had to raise the prices to resellers,' he said.

But Gass insisted that the distributor's level of investment in IBM would remain the same.

One dealer affected by the cuts said the situation felt as though IBM was trying to hinder distributors' reseller accounts. 'It's almost as if IBM is saying: "Please don't sell our product",' he complained.

Another reseller said it was already feeling the pinch. 'Yes, our margins have now gone down even further, but there is absolutely nothing we can do. We just have to accept it. We have to go along with the might of what IBM says.'

IBM declined to comment.