Dell Ends Purchasing Deal With IBM

Dell turns to other computer components suppliers after IBM sells off some of its manufacturing businesses.

Dell Computer Corp. has ended a seven-year, $16 billion contract to buy hardware components from IBM, and is cutting back on a $6 billion services deal.

The deals, struck in 1999, called for Dell to buy everything from disk drives and chips to flat-panel monitors. But over the past year, IBM has sold off several of the businesses that made these components. For example, the Armonk, N.Y., company last summer announced that it was selling off its hard-drive business to Hitachi Ltd. of Tokyo for $2.05 billion.

In 2001, IBM sold its flat-panel business to Chi-Mei Corp., of Taiwan.

Bruce Anderson, a Dell spokesman, said this wasnt a situation where the Round Rock, Texas, company flipped a switch and turned off the deal.

"It was beginning to phase down when a lot of the businesses that IBM was in ... were sold off," Anderson said. "It was a supplier relationship, and we have many suppliers in these areas, so it was not a disruption of any kind to our supply chain."

As far as the services deal goes, Dell will no longer proactively offer IBM services, but will offer them at the request of a customer, he said.

IBM spokesman Joseph Stunkard said Dells decision will have "very little impact. As far as a financial impact, it will not be material to IBM."

A report issued by Lehman Brothers on Dells decision concurred. Given that IBM exited the primary hardware markets, there will be little impact on IBMs revenue there, according to the report by analyst Dan Niles.

IBM revenues from the services deal—which Niles called "largely break/fix, installation and parts"—was less than $200 million a year. "It has negligible impact going forward," Niles said.