December 3, 2004 8:03 AM PST

IBM said to be eyeing a sale of its PC business

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outsourcing business, including an insurance-claims processing company this week.

"I think IBM has stayed in the PC business in part because some of their large accounts have asked them to. But what's happened in the last couple of years is that Dell has become a well-regarded enterprise vendor," said Mark Stahlman, a financial analyst at Caris & Company. "(IBM) looks at its business as a portfolio, and PCs don't rank very highly."

The PC era: 1981-present
Continued from...

• Intel releases the 450MHz Pentium II.
• Apple ships the iMac.

• The number of people worldwide on the Net passes 201 million.

• Intel releases the 1.5GHz Pentium 4.

• The number of PCs sold worldwide since 1981 hits 835 million.
• Apple's iPod turns on the music.

• Apple unveils flat-panel iMac.
• HP closes book on Compaq merger.

• AMD announces 64-bit Opteron and Athlon 64 processors.
• Dell starts its printer business.
• Intel launches Pentium M and Centrino wireless notebook brand.
• PC shipments rise again, hitting nearly 155 million units for the year, according to IDC.

• Gateway completes eMachines buy.
• Intel kills plans for 4GHz Pentium.

Sources: Microsoft and CNET staff research

Earlier this year, IBM consolidated its chip business with its server hardware group in an effort to improve the design of its processors. Both its chip business and its server business have performed well for the company, unlike IBM's PC unit, Stahlman noted.

Prudential Equity Group analyst Steve Fortuna said IBM is best served by focusing on higher-margin hardware products, such as servers and storage, rather than PCs.

"We believe that the PC business is absolutely not strategic to its long-term core strategy," Fortuna said in a research note on Friday. "To the extent that IBM does remain in hardware, they have focused their attention on areas in which they are able to differentiate themselves and add value."

Crown jewel: ThinkPad
Getting even a piece of IBM's business would give Lenovo--a company currently ranked ninth in worldwide unit shipments--a chance to grow its PC business globally and bring yet another round of consolidation to the PC industry, which has seen a number of mergers and acquisitions in the last two years.

It would also give Lenovo access to one of the PC industry's crown jewels: IBM's popular ThinkPad notebook lineup.

Lenovo would not comment on the IBM speculation, but it has indicated that it intends to expand both in China and overseas.

"Lenovo has been notably locked in China. It gives Lenovo access to the U.S. market and access to other world markets," Kay said. But "to get the IBM notebooks would be the prize."

IBM is a distant third in unit shipments, behind Dell and Hewlett-Packard. During the third quarter, IBM had 6 percent of the market, behind Dell's 18 percent and HP's 16 percent, according to IDC figures. IBM is No. 4 in portables, with 8.9 percent share.

Yet in the Asia-Pacific region, IBM leads in notebooks, with 16.5 percent share, a commanding lead over HP's 12.3 percent. Lenovo is ranked sixth, with 7.4 percent in that market.

IBM has consolidated much of the manufacturing of its two computer lines. Most of its ThinkPad models are produced in the company's factory in Shenzhen, China. Its Netvista desktop line is produced under contract by Sanmina-SCI. In January 2002, IBM inked a three-year, $5 billion manufacturing agreement with the company to build the PCs. At the same time, Sanmina-SCI purchased IBM's desktop manufacturing operations in the United States and Scotland, which included some 980 employees, for an undisclosed sum. Later, in January 2003, IBM signed a contract with Sanmina-SCI to produce some of its xSeries servers as well.

Rumors about a potential deal have been flying for some time within some circles in China and Taiwan. Those rumors have focused more on a deal between the companies to sell PCs inside China.

The geography also works out very well, IDC's Kay said, with all of IBM's ThinkPads already being manufactured in China. Lenovo already markets desktops, so it could halt manufacturing of either the IBM line or its own line, though it would likely keep both brand names.

CNET's Dawn Kawamoto contributed to this report.

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