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IBM to customers: Expect business as usual

Following the sale of its PC arm, IBM is charting an even course to retain customers. But pricing could get competitive.

IBM may be selling its PC business, but it's working hard to keep its PC customers.

Still, competitors Dell, Hewlett-Packard and others are likely to come knocking in an attempt to pick off nervous customers, and that could lead to intense jockeying for large deals. Dell, whose chairman Michael Dell observed on Tuesday that PC market mergers have been largely unsuccessful of late, could wield price as a weapon in an attempt to win customers from IBM and Lenovo. HP could do the same.

"IBM did everything they possibly could do to make this deal transparent to their customers."
--Leslie Fiering, Gartner analyst

Yet Lenovo, which also understands how to run a low-margin business profitably, is likely to respond in kind.

"Lenovo management could lead to ThinkPads selling for more competitive prices," said Leslie Fiering, an analyst with Gartner. "It's a pretty attractive value proposition (for IBM customers), if they can make it work."

IBM, which on Tuesday announced plans to sell its PC business to Lenovo Group, says existing customers should expect little in the way of change. IBM structured the agreement in such a way that while Lenovo will be in charge of manufacturing the PCs, IBM will continue selling, financing and servicing them. Lenovo will even be able to sell PCs under the IBM brand for five years.

"IBM has built its reputation on supporting its customers, and that will not change," the company said in a statement on its Web site. "IBM ThinkPad and IBM ThinkCentre brand product lines will continue. They will still be serviced by IBM's world-class service and support organization, as well as technology roll-out and help-desk services. Warranty services that business partners perform on behalf of IBM PCs will continue--business as usual."

So far, at least a few customers report that IBM's strategy is working and they'll stay with the company.

"My gut reaction is I don't have any problem with the fact that (IBM PCs) might be manufactured somewhere else," said Shawn Nunley, director of technology development for NetScaler in San Jose, Calif. "We tend to base our decisions on quality control, features and functionality. So if it's the same product, where it's coming from probably won't make a huge difference."

Still, at least a few problems or disruptions are inevitable as IBM transfers the PC business to Lenovo. The bellwether for IBM, which will maintain an 18.9 percent stake in Lenovo, will be how it responds to problems, analysts said. IBM and Lenovo may also have to give a little on PC pricing in order to help keep customers happy.

"If it has an impact on us at all, I anticipate it to be a positive impact," said an IT executive and major IBM customer at a large manufacturer who asked not to be named.

Fiering of Gartner stressed that IBM went out of its way to make the deal attractive to its PC buyers.

"IBM did everything they possibly could do to make this deal transparent to their customers," she said. "We have to give them a lot of credit for structuring the deal that way. So long as IBM continues its current level of responsiveness in weeding out any problems, (it) is likely to keep many of its large customers."

Gartner is recommending that IBM customers use whatever risks they see in the IBM-Lenovo deal to their advantage when they sit down at the bargaining table.

"We're advising our clients to negotiate hard with IBM right now...to improve their terms and conditions, whether it's price or service level agreements--whatever is important to that customer."

Analysts said that even though there will be competition for some large deals and some customers may make the switch, an all-out price war seems unlikely.

"I can't believe Dell is going to shoot itself in its own profitability," Fiering said.

Another key to success for IBM and Lenovo will be retaining key employees, including IBM's 800 PC sales reps, who are an important contact with customers. Losing them would hurt Lenovo, one source close to IBM said.

The mood among many IBM PCers, meanwhile, has been marked by fear. "Everyone in North Carolina is freaked out," the source said.

CNET News.com reporter Michael Kanellos contributed to this report.