IBM and Dell - a deal worth more than the sum of its parts

The recent headline, 'Dell signs $16bn deal with IBM' came as a shock. Everyone jumped on the news, thinking it was yet another mega-merger. But the instant wow factor faded rapidly on the realisation that it was merely a deal about PC components. Don't be disappointed, though - this deal is about so much more than circuit boards.

Officially, the agreement covers "storage, microelectronics, networking, and display technology from IBM for integration into Dell computer systems". That could pretty much include whatever you want it to, so since that statement was issued, both parties have been at great pains to stress what it does and doesn't mean.

According to them, it does not mean IBM will supply services with Dell hardware; it does not mean Intel will stop supplying microprocessors to Dell; and it does not mean IBM will pull out of the PC market. Hmmm, methinks they are protesting too much.

For a start, both firms have admitted there is plenty of room to expand their agreement. Bundling IBM's services with Dell hardware would be the least contentious way to do this, and it would certainly seem a logical move as well. But are we really expected to believe that IBM would sign a multibillion dollar component deal which would exclude the patented copper and silicon-on-insulator chip technology it has coming down the line? If I were Intel CEO, Craig Barrett, I'd be having a few sleepless nights at the moment.

And what about PCs? Will IBM pull out of the low-end market? Well, let's face it, Big Blue has spent the last two years repositioning itself as a supplier of technologies rather than products. Just take a look at its two most recent television adverts - the one for its ViaVoice speech recognition system, and the "for every buck we put in, we'll get two bucks back" e-business one.

Neither are about a particular ThinkPad notebook, Netfinity server or SmartSuite application. Instead, they are about technologies and services. IBM makes a tremendous amount of money inventing and selling or licensing those inventions to third parties. It also makes money selling high-end systems, tailored software and the consultancy that goes with it.

So why persist with the low-end/high-maintenance PCs? Well, it can't just pull out overnight - that would leave a lot of key customers with a strong 'feelbad' factor and would also lop a huge chunk of turnover off its annual results. So what better solution than to ally with the shooting star of the PC arena - let Dell manage the distribution and sales of those products, leaving IBM to make all its money by supplying those components.

You can see the marketing taking shape already - Dell PCs and servers with IBM Inside. Let both companies do what they do best, and make an awful lot of money doing it.