IBM to outsource server manufacturing

NEWS IBM is poised to announce a major deal to outsource a portion of its server manufacturing, sources familiar with its plans say. Just a year after outsourcing the manufacturing of its NetVista desktop PCs, Big Blue will do the same for its X-Series servers and IntelliStation workstations sold in North America and Europe. The contract will go to Sanmina-SCI, which also took over the manufacturing of IBM's NetVista desktop and purchased IBM facilities in the United States and Scotland last year, sources said on Tuesday. The new deal, expected to be worth as much as $3.6bn over three years, will be announced sometime this week, sources said. IBM apparently believes the deal will make its PC and server businesses more efficient and will lower its overall costs. The move can also simplify its component supply chain, by shifting the procurement of some components to Sanmina-SCI, sources said. IBM would not comment of any possible deal. On the whole, the agreement is designed to help IBM lower its costs to better compete with companies such as Dell in the cutthroat market for Intel-based servers. Sanmina-SCI will handle configuration of some of the servers, which will be manufactured in China. IBM will continue to handle configuration of some servers as well. Roger Kay, an analyst with IDC, said the deal could give IBM a needed lift. "A deal such as this would help IBM aggressively lower costs and let the company better use its bulk, which it hasn't been able to do effectively in the past," Kay said. Meanwhile, IBM is expected to announce a smaller deal with another outside manufacturer, possibly Solectron, to handle asset recovery -- an operation that takes in and redistributes leased equipment. That deal is valued at the hundreds of millions, sources said. Despite outsourcing desktops and some servers, IBM plans to keep its ThinkPad notebook line in-house. But the company has also streamlined manufacturing there. It is expected to announce that all of its ThinkPad manufacturing has been consolidated in Shenzhen, China. Manufacturing of servers that are sold in the Asia-Pacific region and South America are not affected by the Sanmina-SCI deal. However, the deal could eventually include other IBM computers. Despite its effect on about 1,300 IBM employees, the new outsourcing agreement isn't expected to result in major job losses, sources said. Sanmina-SCI, which will acquire IBM assets such as facilities, is expected to offer those employees affected by the deal similar jobs to the ones they have now. IBM is expected to announce that Bob Moffat, IBM's supply-chain wizard, will be in charge of the manufacturing deal.

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