Tuesday, June 12, 2007

How long can IBM stay in a low profit business sector? .

NetApp is very proud of its reseller relationship with IBM. And many of our customers have been able to get better deals by getting quotes on identical equipment from both IBM and NetApp. But I always figured it was going to be hard for IBM to make money on reselling NetApp equipment. Therefore when I saw this article in Today's Wall Street Journal I was not very surprised.


The software deals represent a fundamental reality at IBM: Big Blue's giant services arm has narrow profit margins, and its core hardware unit is struggling with weak sales growth. But margins in software are fat, and, boosted by deals, sales are growing well.


Will IBM continue to resell NetApp equipment even though it has narrow margins on the resale and service of the equipment? Will they be able to force concessions out of NetApp to get their margins higher? If IBM is able to get bigger margins out of NetApp will the result be lower profits for NetApp?

Interesting times.

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