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.
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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.
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