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I.B.M. Said to Put Its PC Business on the Market
By ANDREW ROSS SORKIN and STEVE LOHR
Published: December 3, 2004
International Business Machines, whose first I.B.M. PC in 1981 moved personal computing out of the hobby shop and into the corporate and consumer mainstream, has put the business up for sale, people close to the negotiations said yesterday.
While I.B.M. long ago ceded the lead in the personal computer market to Dell and Hewlett-Packard so it could focus instead on the more lucrative corporate server and computer services business, a sale would nonetheless bring the end of an era in an industry that it helped invent. The sale, likely to be in the $1 billion to $2 billion range, is expected to include the entire range of desktop, laptop and notebook computers made by I.B.M.
The retreat from the business may be the ultimate acknowledgement that the personal computer has become a staple of everyday life, a commodity product, yielding very slim profits. The companies that make the most money from PC's these days are Microsoft and Intel - whose software and chips are the standard for most of the personal computers sold, regardless of the maker.
According to the people close to the negotiations, I.B.M. is in serious discussions with Lenovo, China's largest maker of personal computers, and at least one other potential buyer for the unit. Lenovo was formerly known as Legend.
A spokesman for I.B.M., Edward Barbini, said last night, "I.B.M. has a policy of not confirming or denying rumors."
If I.B.M.'s personal computer business ends up being sold to Lenovo, it would continue the migration of high-technology manufacturing to China and Taiwan.
In the 23 years since I.B.M. lent its prowess in mainframe computers to the production of desktop machines, it has been widely criticized for having destined the machines to commodity status by giving Microsoft and Intel the rights to those essential standards. And although Apple Computer holds less than 4 percent of the personal computing market worldwide, it has been able to command relatively high prices and richer profits because it has controlled the software and hardware that goes into its machines.
A sale of the personal computer business would be a step away from I.B.M.'s traditional emphasis on the size of its revenue as a measure of its corporate power. The PC business represents about 12 percent of I.B.M.'s annual revenue of $92 billion.
For nearly a decade, though, some industry analysts have urged I.B.M. to get out of that business as it made only a modest profit or lost money. For this year, analysts have expected a pretax profit of less than $100 million.
I.B.M. executives long resisted that course, arguing that personal computers were technology products its corporate customers wanted. It held on to the business on the theory that it helped hold on to customers.
But in the most recent quarter, I.B.M. ranked a distant third in worldwide PC sales, with 5.6 percent of the market, according to Gartner, the market research firm. Dell was the leader with 16.8 percent of the world market, and Hewlett-Packard, which has absorbed Compaq Computer, had 15 percent.
A sale now, if it happens, would be consistent with the strategy pursued by Samuel J. Palmisano, who became I.B.M.'s chief executive early in 2002. He has sold hardware businesses where profits were slender and growth prospects were limited, like its hard disk drive business, which was sold to Hitachi.
Instead, Mr. Palmisano has bet on expanding the company's services business, automating a full array of operations - from product design to sales-order processing - for corporate customers. I.B.M. now casts itself as a company that does not simply sell technology but serves as a consulting partner to help its customers use technology to increase the efficiency and competitiveness of their businesses. As part of that strategy, he bought PricewaterhouseCoopers Consulting for $3.5 billion, in a deal that closed in October 2002.
"Palmisano's getting out of businesses that aren't growth opportunities and concentrating on what I.B.M. does best," said Mark Stahlman, an analyst at Carris & Company. "PC's are not where the growth is."
To trim costs, I.B.M. has steadily retreated from the manufacture of its PC's. In January 2002, it sold its desktop PC manufacturing operations in the Untied States and Europe to Sanmina-SCI, based in San Jose, Calif. I.B.M. now confines its role in PC's to design and product development out of its offices in Raleigh, N.C., with all the I.B.M.-brand desktop or notebook computers made by contract manufacturers around the world.
Leslie Fiering, a research vice president at Gartner, has predicted consolidation in the PC industry over the next few years.
"Exiting the market may be the only logical choice for global vendors bleeding profits and struggling for share," she wrote in a recent research report. And she noted that Hewlett-Packard, a broad-based technology company where PC's are only part of a much larger business, might face pressures similar to I.B.M.'s.
"The PC divisions of H. P. and I.B.M." Ms. Fiering wrote, "are vulnerable to being spun off if their drag on margins and profitability are deemed too great by their parent companies."
In the meantime, she said, Asian vendors like Lenovo "appear well positioned to leverage their strong local-market standing and low-cost operating models into a global presence."
Asia has increasingly become a major hub for technology manufacturing. More and more chip making is done in the contract factories, like Taiwan Semiconductor, and at new foundries in China.
Still, in the semiconductor industry, Intel and I.B.M. still have big factories in the United States, and Advanced Micro Devices, Intel's most prominent rival in chip making, has a leading-edge plant in Germany.
Personal computer making has followed the same path to Asia, especially in the case of notebook machines made in China and Taiwan. Lenovo has had long ties with I.B.M. It got its start in 1984 as a distributor of personal computers from I.B.M. and AST, the Taiwan PC maker.
By ANDREW ROSS SORKIN and STEVE LOHR
Published: December 3, 2004
International Business Machines, whose first I.B.M. PC in 1981 moved personal computing out of the hobby shop and into the corporate and consumer mainstream, has put the business up for sale, people close to the negotiations said yesterday.
While I.B.M. long ago ceded the lead in the personal computer market to Dell and Hewlett-Packard so it could focus instead on the more lucrative corporate server and computer services business, a sale would nonetheless bring the end of an era in an industry that it helped invent. The sale, likely to be in the $1 billion to $2 billion range, is expected to include the entire range of desktop, laptop and notebook computers made by I.B.M.
The retreat from the business may be the ultimate acknowledgement that the personal computer has become a staple of everyday life, a commodity product, yielding very slim profits. The companies that make the most money from PC's these days are Microsoft and Intel - whose software and chips are the standard for most of the personal computers sold, regardless of the maker.
According to the people close to the negotiations, I.B.M. is in serious discussions with Lenovo, China's largest maker of personal computers, and at least one other potential buyer for the unit. Lenovo was formerly known as Legend.
A spokesman for I.B.M., Edward Barbini, said last night, "I.B.M. has a policy of not confirming or denying rumors."
If I.B.M.'s personal computer business ends up being sold to Lenovo, it would continue the migration of high-technology manufacturing to China and Taiwan.
In the 23 years since I.B.M. lent its prowess in mainframe computers to the production of desktop machines, it has been widely criticized for having destined the machines to commodity status by giving Microsoft and Intel the rights to those essential standards. And although Apple Computer holds less than 4 percent of the personal computing market worldwide, it has been able to command relatively high prices and richer profits because it has controlled the software and hardware that goes into its machines.
A sale of the personal computer business would be a step away from I.B.M.'s traditional emphasis on the size of its revenue as a measure of its corporate power. The PC business represents about 12 percent of I.B.M.'s annual revenue of $92 billion.
For nearly a decade, though, some industry analysts have urged I.B.M. to get out of that business as it made only a modest profit or lost money. For this year, analysts have expected a pretax profit of less than $100 million.
I.B.M. executives long resisted that course, arguing that personal computers were technology products its corporate customers wanted. It held on to the business on the theory that it helped hold on to customers.
But in the most recent quarter, I.B.M. ranked a distant third in worldwide PC sales, with 5.6 percent of the market, according to Gartner, the market research firm. Dell was the leader with 16.8 percent of the world market, and Hewlett-Packard, which has absorbed Compaq Computer, had 15 percent.
A sale now, if it happens, would be consistent with the strategy pursued by Samuel J. Palmisano, who became I.B.M.'s chief executive early in 2002. He has sold hardware businesses where profits were slender and growth prospects were limited, like its hard disk drive business, which was sold to Hitachi.
Instead, Mr. Palmisano has bet on expanding the company's services business, automating a full array of operations - from product design to sales-order processing - for corporate customers. I.B.M. now casts itself as a company that does not simply sell technology but serves as a consulting partner to help its customers use technology to increase the efficiency and competitiveness of their businesses. As part of that strategy, he bought PricewaterhouseCoopers Consulting for $3.5 billion, in a deal that closed in October 2002.
"Palmisano's getting out of businesses that aren't growth opportunities and concentrating on what I.B.M. does best," said Mark Stahlman, an analyst at Carris & Company. "PC's are not where the growth is."
To trim costs, I.B.M. has steadily retreated from the manufacture of its PC's. In January 2002, it sold its desktop PC manufacturing operations in the Untied States and Europe to Sanmina-SCI, based in San Jose, Calif. I.B.M. now confines its role in PC's to design and product development out of its offices in Raleigh, N.C., with all the I.B.M.-brand desktop or notebook computers made by contract manufacturers around the world.
Leslie Fiering, a research vice president at Gartner, has predicted consolidation in the PC industry over the next few years.
"Exiting the market may be the only logical choice for global vendors bleeding profits and struggling for share," she wrote in a recent research report. And she noted that Hewlett-Packard, a broad-based technology company where PC's are only part of a much larger business, might face pressures similar to I.B.M.'s.
"The PC divisions of H. P. and I.B.M." Ms. Fiering wrote, "are vulnerable to being spun off if their drag on margins and profitability are deemed too great by their parent companies."
In the meantime, she said, Asian vendors like Lenovo "appear well positioned to leverage their strong local-market standing and low-cost operating models into a global presence."
Asia has increasingly become a major hub for technology manufacturing. More and more chip making is done in the contract factories, like Taiwan Semiconductor, and at new foundries in China.
Still, in the semiconductor industry, Intel and I.B.M. still have big factories in the United States, and Advanced Micro Devices, Intel's most prominent rival in chip making, has a leading-edge plant in Germany.
Personal computer making has followed the same path to Asia, especially in the case of notebook machines made in China and Taiwan. Lenovo has had long ties with I.B.M. It got its start in 1984 as a distributor of personal computers from I.B.M. and AST, the Taiwan PC maker.
I hope the ThinkPad line stays alive and how it is if someone else buys it. It's the only line of laptops I'll buy.
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