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October 9, 1991

IBM LAUNCHES IBM OEM EUROPE, PITCHES FOR A 5% SHARE OF THE OEM MARKET BY 1995

By CBR Staff Writer

IBM Corp is formalising its original equipment manufacturing activies by establishing IBM OEM Europe. It is part of a worldwide division targeting a market estimated to be worth some $100,000m by 1993. IBM currently holds around 1% of that market, and it plans to increase that to 3% by 1993, 5% by 1995. The company says that it has been involved in OEM activities since 1981 when it started supplying disk storage devices to Siemens AG, but it believes that there are compelling reasons to expand its activities. Not least of these is profit. OEM margins are high, and increased demand for IBM products means that volume production should reduce costs. Does that mean that IBM is going to ramp up its manufacturing facilities despite Nick Temple’s oft-repeated assertion that IBM is now a software and services company? Jack Hockley, general manager of IBM OEM Europe, anticipates that factory floor space will not be expanded, but he acknowledges that he would be happy to increase manufacturing and staffing levels if the OEM business justified such a move. Another reason for becoming a more active supplier is the success of the Japanese. They have shown that they are successful in the traditional computer market and as suppliers of components, and IBM acknowledges that their success has been a motivating force. Hockley is heading European operations from Havant, and has 75 marketing staff at present, expected to grow to over 100 by next year.

Not IBM proprietary ones

European OEM business is said to account for 33% of revenue, with the UK representing just over UKP2,000m, and half of that comes from sales to the electronic industries. Industries other than information technology are the fastest growing segment in terms of OEM business, but IBM says that electronics companies are showing marked interest in using the RS/6000 chip set. Is there a similar interest in the AS/400? Well, there are some OEM customers, but John Hemsley, European marketing director, says that he does not anticipate similar demand since customers want to standardise on industry standards, not IBM proprietary ones. Mr Hemsley is probably more popular in Austin, Texas than Rochester, Minnesota. IBM says that is planning to focus on three types of business – regular commodity supply of disk drives and boards; building Wang Laboratories Inc-type relationships where IBM architecture is a basis for future development; and the supply for integration at component level. One of the potential problems of entering the OEM world is channel conflict. Hockley says he is aware that any conflict between supplying IBM customers and OEM customers will have to be managed. But, if products are in short supply or not available by the promised delivery date, just how will IBM manage that conflict? OEM customers are entirely different from IBM’s traditional constituency, and they are unlikely to grin and bear delays with the same resignation as users. Hemsley acknowledges that this is the case and he insists that OEM customers will not assume a lower priority, and in many cases, will have products before they are generally available. Is the entire IBM portfolio going to be made available for the OEM marketplace? Yes and no. There are no sacred cows, says Hockley, but each situation will be judged individually. IBM says that it expects companies to add value to products, as opposed to shifting them without a care, but the possibility is there that IBM’s OEM partners will offer products way below IBM’s list price – Cambex Corp already competes with IBM on AS/400 disk subsystems by buying IBM 3.5 disks OEM. Talking of which, or rather the lack of, will the OEM catalogue include pricing details? Hemsley says that worldwide pricing will be as consistent as possible, but the answer is no, the catalogue will not provide prices. Some things remain constant in an ever-changing world.

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