A year after IBM announced it was farming out the production of its NetVista desktop PCs in a bid to reduce costs in its supply chain, the company last week said it is going to do the same with the bulk of its eServer xSeries systems and IntelliStation workstations.
The Armonk, N.Y., company signed a $3.6 billion deal with Sanmina-SCI Corp.—the same company contracted in the PC manufacturing deal—to build the Intel Corp.-based servers and workstations for IBM customers in the Americas, portions of Europe, the Middle East and Africa.
As part of the three-year deal, Sanmina—which will acquire IBM manufacturing facilities in Mexico and Scotland—will also fulfill custom configuration orders for the NetVista desktops, ThinkPad notebooks and xSeries systems, according to IBM. However, IBM will continue building most of the ThinkPads in its facility in Shenzhen, China.
In a separate deal, IBM will pay Solectron Corp., of Milpitas, Calif., $120 million over three years to handle its Global Asset Recovery Services, a part of IBM Global Financing that restores and resells hardware at the end of their leases. Solectron will acquire IBMs refurbishing plant in Raleigh, N.C.
About 1,060 IBM employees in Mexico, Scotland and North Carolina will transfer to Sanmina, of San Jose, Calif. Some 250 workers will be offered jobs with Solectron. Both deals are expected to close next month, IBM said.
Analysts applauded the moves to outsource the production of such low-end and midrange products, which they said have become commoditized."Theres not a lot of engineering that goes into the manufacturing, and there are a lot of companies that are very good at assembling the Lego blocks to build workstations or low-end servers and PCs," said Steve Kleynhans, an analyst with Meta Group Inc., in Toronto. The innovation around these products involves features, not how theyre built, Kleynhans said.
IBM spokeswoman Nancy Kaplan said the company is constantly looking at what should be outsourced and what should be built in-house as it tries to reduce fixed costs in its supply chain. Outsourcing PC manufacturing has worked well for IBM, Kaplan said. For example, the company saw a 25 percent reduction in the standard manufacturing time. "Basically, were building more of them," Kaplan said.
David Caruso, an analyst with AMR Research Inc., in Boston, said he expects to see IBM outsource more manufacturing in the future, particularly as it pushes to drive down its supply chain costs. Caruso pointed out that Bob Moffat, senior vice president and group executive of IBMs Integrated Supply Chain unit, was able to cut $5 billion from the companys supply chain costs last year.