Ibm: Once More Into The Pc Breach...

Marching orders for the NetVista line: Reclaim the desktop!

Heard the riddle that's making the rounds among computer professionals? What's big, blue, and can only fly south? Try IBM's desktop computer unit. For Big Blue, though, it's no laughing matter. Sales of IBM's desktop machines have been on a multiyear market-share slide, and the entire PC division has lost more than $1 billion in the past two years--largely on the weakness of desktop sales.

There's no riddle to what IBM is planning to do about its PC business: It's going to try again. On Mar. 13, the computer giant unveiled plans to spend $100 million to promote a new line of PCs called NetVista. The computers include a $1,900 all-in-one machine that bundles a sleek flat-panel monitor like those found on laptops. Another model is an Internet appliance that uses Linux software and will be offered on lease via IBM partners such as brokerages and Internet service providers for about $25 to $50 per month, including Web access. Fidelity Investments and SBC Communications Inc. have launched trial programs using the device. "This probably is IBM's biggest departure in the desktop in 15 years," enthuses David M. Thomas, head of IBM's Personal Systems Group.

OUT OF RABBITS? This may be the last chance for IBM to do something big in the desktop PC market, where competitors Compaq Computer and Dell Computer have beaten Big Blue soundly. IBM's fourth-quarter desktop revenues--the prime period for PC sales--dropped to $2.2 billion in 1999, from $3.8 billion a year earlier. And U.S. market share for the fourth quarter plunged to 3.6% from 8.1%, according to International Data Corp. Lower sales mean IBM may not get the same high-volume discounts suppliers give rivals Dell or Compaq, which boast 16.3% and 15.9% fourth-quarter market share in the U.S., respectively. Weak desktop sales, especially in the corporate market, also eat into fast-growth businesses, such as the software and services that IBM sells alongside its hardware. "If this doesn't work, I'm not sure what other rabbits they can pull out of the hat," says Roger L. Kay, research manager at market-watcher IDC.

IBM is taking a page from its laptop PC playbook to revive its desktop business. The NetVista machines echo the distinctive design of IBM's popular ThinkPad laptop and were designed by the same team. Thomas says the styling, coupled with IBM's global reach and reputation for reliability, will give NetVista a boost. He's betting on the growing popularity of flat-panel displays, where IBM has always been a leader. And the Internet appliance marks IBM's first foray into a market Thomas expects to "explode" as higher-bandwidth Web connections become more widely available. "We can do with NetVista what we've done with the ThinkPad," Thomas says.

Maybe. While analysts laud IBM for the design of the new machines--they all have a matte black casing and sharp, angular lines--some question whether that will be enough to lift the PC operation out of the doldrums. "I don't know how this fixes IBM's problems," says Salomon Smith Barney analyst John B. Jones Jr. Simply put, Jones says, Dell and others build computers more efficiently. And the all-in-one model, with its expensive flat screen, may cost too much to become a hit in a market dominated by sub-$500 PCs--even though it's priced about the same as a similar model from Compaq. "People will worry about the price of the screen," says analyst Stephen M. Baker of PC Data, a Virginia-based market research firm.

SHUNNING STORES. To be sure, the PC unit isn't entirely hapless. The operation includes IBM's ThinkPad laptops, which have earned strong reviews for their design--and which currently have 14% market share among portables, third behind Dell and Compaq. And IBM's PC servers have won widespread praise in recent years.

IBM: Once More into the PC Breach...

IBM hasn't had the same luck in desktops. Last October, the company announced that it would quit retail stores and concentrate on direct sales to U.S. businesses and consumers via the Internet and a handful of other channels. NetVista computers--scheduled to be shipped in late April--will be available only on the Web or from distributors serving business clients. To make sure customers know what IBM has to offer, Thomas is nearly doubling the company's advertising budget from the $55 million that was spent last year. "It's critical that we get the message out," Thomas says. If he fails, Big Blue's PC business may continue its long trip south.

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