PC makers form online parts exchange

by ZDNN

NEW YORK, 3 May 2000 -- Several top computer makers on Monday said they would join forces with some of their largest component suppliers to form an independent company that promises to become one of the largest online marketplaces in any industry to date.

Twelve of the biggest names in the computer industry said the new company would help wring efficiencies from the existing global manufacturing supply chain, taking a page from "old economy" industries such as automakers, airlines and retailers that have formed similar cross-industry partnerships recently.

But while organizers of the new online marketplace company said they were open to other companies' participation, IBM Corp. broke ranks and said it was planning a separate online components market.

"The goal is supply-chain savings," Michael Capellas, president and CEO of Compaq Computer Corp., the world's No. 1 maker of personal computers, said in an interview of its electronic marketplace efforts.

Getting started Carly Fiorina, president and CEO of Hewlett-Packard Co., the No. 3 PC maker and top computer printer supplier, likened the online market to the New York Stock Exchange. Instead of stocks, buyers and sellers would trade computer chips, hard disk drives and other commodity parts.

"To gain the full benefit, you need liquid markets. That means lots of buyers and lots of suppliers," she said at the news conference announcing the plan.

At the event, the Compaq and Hewlett-Packard executives were joined by No. 5-ranked PC maker Gateway Inc. flanked by nine suppliers, including chip makers Advanced Micro Devices Inc., Samsung Electronics, Infineon Technologies, NEC Corp. and Hitachi Ltd.

It also includes disk-drive makers Quantum Corp. and Western Digital Corp. and printed circuit-board makers Solectron Corp. and SCI Systems Inc.

The high-technology marketplace initially would be a catalog of products from each of the participants and later would connect buyers and sellers and eventually would be used to speed the design and manufacture of new products.

Backers of the plan said they were open to other industry players joining, such as IBM, the world's largest computer maker, and Intel Corp., the top chip maker. An Intel spokesman declined to comment on whether it had been approached to join either exchange.

IBM goes in another direction? Separately, however, an IBM official said his company was developing its own online marketplace for computer components to rival the one announced by the 12-member alliance and that IBM already had enlisted nine partners for its plan.

In a phone interview, Steve Ward, general manager of IBM's industrial sector business, said IBM's component purchasing exchange would be based around an existing standard for such online marketplaces known as RosettaNet.

The IBM exchange would include other computer makers, as well as consumer electronics and telecom suppliers. The companies involved would each have "ten figures of purchasing size," Ward said, referring to billion dollar budgets.

In response, officials of the Compaq-HP-led effort said they would be surprised if IBM moved ahead separately: "It's still possible for the marketplaces to interoperate or potentially combine," said Keith Melbourne, general manager of Hewlett-Packard's trading community business unit. "There is no exclusivity."

Melbourne said executives of the 12-member group had discussed the plans with a top-level executive at IBM on Monday and he was confident the two groups could iron out any differences.

"We have spoken to IBM. They are committed to the same philosophy. It is under consideration what role they would play. We would be delighted if they would join us," Fiorina said.

'Extending' the marketplace IBM is HP's largest rival, but also a major supplier of key computer components both to Hewlett and Compaq.

The Compaq-HP company is expected to be up and running in 60 to 90 days and its management, which has yet to be selected, will be charged with selecting the specific software technology to link buyers and sellers in the far-flung online marketplace.

A Compaq official said that, eventually, its marketplace could be extended to include buyers and sellers of telecommunication and consumer electronics components as well. Similarly, IBM said it would include other electronics makers.

Fiorina said participants estimated they could realize cost savings of between 5 percent to 7 percent from the parts supply marketplace -- which is estimated to generate $600 billion in total sales of high-tech components by 2004.

Fiorina said the 12 founding members could grow to 20 central members by the time the company is launched. Each of these members would have an equal stake in the company, which will get started with $100 million in seed capital from the founders.

The executives said they had briefed antitrust regulators, and did not expect any hang-ups as the exchange would be open to companies small and large.