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A SPECIAL ANNEX NEWSFLASH
IBM-Dell $16 Billion Megadeal Collapses
Dell Pulls the Plug on IBM
Much-ballyhooed Techno-Marriage Ends Up on Rocks, But IBM Chimes In with New $2 Billion Megadeal
PHOENIX, Feb 13 - Dell Computer Corp., the world's top PC maker, pulled the plug Tuesday on its $16 billion technology deal with IBM. The company also said it was paring back ("rescoping" - in IBM lingo) significantly on its $6 billion services partnership with Big Blue.
The much-ballyhooed March 1999 agreement between the companies hasn't measured up to expectations because customers are choosing less expensive service providers, a Dell spokesman told Reuters on Feb 11.
“What's changed is that customers are not choosing IBM as their service provider anymore because they are a little bit more expensive,” Dell spokesman Jon Weisblatt said.
only has a small computer services division, signed a three-year agreement
with Electronic Data Systems (EDS) in October 2002, under which EDS
provides customer service efforts in the U.S. and Latin America.
Dell also said
on Tuesday that a $16 billion agreement it had signed with IBM in 1999 for
computer parts had been phased out during the last few years as IBM sold
those product lines, such as flat panel displays and hard disk drives.
IBM sold its hard disk drive business at the end of 2002 to Hitachi, which created a new company called Hitachi Global Storage in which IBM has a 30 percent stake. It will totally exit the business within three years.
No surprise there. When IBM announced the sale of its storage business to Hitachi earlier last year, we questioned why Wall Street analysts weren't more inquisitive about the fate of that celebrated $16 billion IBM-Dell 1999 deal, that no one at Big Blue was talking about anymore.
Here's an excerpt from the Annex Newsflash (June 4, 2002):
The Story behind the Story...
So that's the latest news story. And now, the story behind the story....
Surprised that such a huge deal has unraveled so soon? You shouldn't be. Not if you're an Annex Research client. To refresh our collective memories, here's an excerpt from the Annex Bulletin 99-08 (Mar. 5, 1999) headlined...
To read the rest of the above story, click here.
In other words, what happened this week was predictable even the day $18 billion of market value surged and then vanished four years ago. If anything, we are wondering what took them so long?
The New Visteon Megadeal
As if acting to blunt the bad news about the Dell deal, IBM announced on Wednesday that it had signed a $2 billion services deal with auto parts maker Visteon Corp., a spin-off of Ford Motor Co.
10-year deal, Big Blue will handle desktop support, data network
management, customer support centers and application development. As part
of the deal, IBM will take on an undisclosed number of Visteon employees.
spun off from Ford Motor Co. in 2000. Visteon spokesman Greg Gardner told
Reuters that transferring the technology work to IBM is part of its
commitment to be completely separate from Ford by the end of this year.
In the fourth quarter, Ford accounted for 78 percent of Visteon's
division has struck similar deals with companies in the past to take over
their technology operations. At the end of 2002, for instance, it signed a
$5 billion deal with JP Morgan Chase.
So you win some, you lose some... as the old adage goes. IBM's techno-marriage with Dell ended up on the rocks, but its fourth quarter 2002 and first quarter 2003 new contract signings suggest Big Blue may have begun a real turnaround.
Happy bargain hunting!
For additional Annex Research reports, check out...
2002: “Gerstner: The Untold Story” (Dec 27), "Gerstner Spills the Beans" (Dec 13), "On a Wing and a Prayer" (Oct 21), "IBM-PwC Tie the Knot" (Oct 2), "Half or Double Trouble?" (Aug 12), Wall Street/Main Street Chasm (June 25), “Wall Street Casino,” (June 21), Big Blue Salami (June 19), "Looming IBM Layoffs" (May 14), "IBM 5-Yr Forecast: From Here to Eternity?" (Apr 2002), “Tough Times, Soft Deals,” (Apr 25, 2002), “Gerstner’s Legacy: Good Manager, Poor Entrepreneur” (Jan 2002), IBM Pension Plan Vapors: Where Did $17 Billion Go? (Mar 2002), "Sir Lou OutLayed Lay!" (Apr 1, 2002).
A selection from prior years: Is IBM Cheating on Taxes, Annex Bulletin 99-17 (May 1999), IBM 5-year Forecast 2001: An Unenviable Legacy (June 2001), "Break Up IBM!" (Mar. 1996), Fortune on IBM (June 15, 2000), “Smoke and Mirrors Galore,” July 2000), "Slam Dunk of Bunk" (Jan 2000), Annex Bulletin 98-14 ("Wag the Big Blue Dog"), Armonk's Fudge Factory (Apr. 9, 1999), Where Armonk Meets Wall Street, Greed Breeds Incest (November 1998), Stock Buybacks Questioned: Is IBM Mortgaging Its Future Again?, 97-18 (4/29/97), "Some Insiders Cashed In On IBM Stock's Rise, Buybacks" 97-22, 7/27/97, Djurdjevic’s Forbes column, "Is Big Blue Back?," 6/10/97; “Executive Suite: How Sweet!,” (July 1997), "Gerstner: Best Years Are Behind", Aug. 10, 1999), "IBM's Best Years Are 3-4 Decades Behind Us" (July 1999), "Lou's Lair vs. Bill's Loft" (June 1999), "Corporate Cabbage Patch Dolls," 98-39, 10/31/98; Djurdjevic’s Chronicles magazine October 1998 column, "Wall Street Boom; Main Street Doom", “Louis XIX of Armonk,” (Aug. 1996), "Mountain Shook, Mouse Was Born" (Mar. 25, 1994), “A Nice Guy Who Lost His Compass” (Jan 26, 1993), “Akers: The Last Emperor?” June 1991), Industry Stratification Trend (Mar. 30, 1990), etc.]
Volume XIX, Annex Newsflash No. 2003-02
Editor: Bob Djurdjevic
P.O. Box 97100, Phoenix, Arizona
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