December 3, 2004 8:03 AM PST

IBM said to be eyeing a sale of its PC business

IBM, which gave legitimacy to the personal computer business in the 1980s, is said to be negotiating the sale of its PC unit in a move that could reshape the industry.

The company is negotiating with Chinese manufacturer Lenovo Group, formerly known as Legend, and at least one other buyer to sell its PC business unit, according to a report in Friday's New York Times. The unit could fetch as much as $2 billion, the report said.


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IBM spokesman Clint Roswell on Friday said the company's policy is not to comment on rumor or speculation. Representatives at Lenovo were unavailable for comment.

In morning trading, IBM's stock was up 1.28 percent to almost $97.

IBM selling its PC business to Lenovo, which would most likely result in a joint venture of some sort, would make sense for both companies, analysts said. Such a deal would free IBM--which has been moving away from commodity products--from managing a difficult and often money-losing venture, while still giving it access to desktops and notebooks to provide to its customers.

"The PC business is a sort of also-ran, me-too sort of business (for IBM). There are a lot better businesses, including global services and some of the larger computers, that IBM participates in," said Roger Kay, an analyst with IDC. An agreement would "get IBM out of what they think of as a nonstrategic, non-yielding business."

The PC era: 1981-present
Two-plus decades have brought major changes to the PC industry. Here's a glimpse at some of the significant events:

1981
• IBM announces the 5150 PC, ranging from $1,565 to $4,500.

1982
• Commodore announces the Commodore 64 microcomputer.
• Columbia Data Products releases the first IBM PC clone.
• Intel introduces the 6MHz 286 processor.
• Sun Microsystems and Compaq Computer are founded.

1983
• Apple Computer introduces the Lisa computer for $10,000.
• Compaq ships a 28-pound portable computer.
• Microsoft announces the Windows operating system.
• Sony unveils the 3.5-inch floppy disk, which holds up to 1MB of data.

1984
• Apple introduces the Macintosh computer.
• IBM announces the PC-AT.
• Philips unveils CD-ROM players for PCs.
• The number of hosts on the Internet reaches 1,000.
• Hewlett-Packard enters the printer business.
• Dell Computer is founded.

1985
• Microsoft ships Microsoft Windows 1.0.
• Gateway is founded as Gateway 2000.

1986
• Microsoft goes public.

1987
• Intel introduces the 20MHz 386 processor.

1989
• Intel releases the 25MHz 486 processor.
• HP marks its 50th anniversary.

1990
• The World Wide Web is born.

1993
• Microsoft launches Windows NT 3.1.
• The number of Americans on the Net reaches 3 million.
• Intel introduces the 66MHz Pentium processor.

1995
• Microsoft releases Windows 95 and Office 95.

Continued ...

Other analysts said that a joint venture, rather than an outright sale, would make more sense for IBM. "While we believe IBM is seeking to enhance (its PC group's) profits, Big Blue may not elect to sell the entire business and could structure a creative deal in pieces or in terms of distribution," said a research note released Friday by UBS Securities analysts.

The report warned that IBM needs to be wary of the potential to lose sales to corporate users, as competitors may use their PC sales as a means to land the more profitable and large deals that involve servers and software.

Recurring rumors
The fate of IBM's PC business has been a source of recurring speculation for years. Former CEO Lou Gerstner, largely credited with turning the company around in the 1990s by emphasizing computer services, was said to favor a move away from PC hardware. IBM's 1998 annual report included a subsection titled "The PC era is over," leading to widespread speculation that IBM--the company that invented the modern PC industry--intended to sell off its PC operations.

The company later denied that it had plans to completely abandon the PC business. But speculation continued among Wall Street analysts and other company watchers as PC profit margins began to shrink.

Eventually, IBM chose to exit the consumer PC unit almost entirely to focus instead on the corporate audience, where the company's strategy has been to design hardware more technically advanced than competitors' offerings.

Consolidation within the PC industry is inevitable, according to market watchers. As many as three of the top 10 PC manufacturers may be forced out of the global PC market by 2007, according to a report issued earlier this week by market research company Gartner.

Although IBM's PC business attained profitability this year, the company's overall strategy has been to move away from commodity products such as desktop PCs and laptops. Rather than compete with the likes of hardware supplier Dell on price, Palmisano is steering the company toward higher-margin businesses such as consulting services and software.

Palmisano has singled out business process outsourcing--in which IBM takes over some of a customer's functions, such as human resources and finance--as a $500 billion opportunity for the company. IBM has made a number of acquisitions to beef up its process

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11 comments

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No Surprise
IBM PC's have always been underpowered and overpriced. They could have dominated the PC market, but they really make their money in middle (AS400, AIX, RS6000) to Big Iron. THAT is their core business. They stayed in the PC business "'cuz", but have always been a "player" but never a contender. It makes you wonder why IBM never pushed hard in this market. It's not because they couldn't. Me thinks there is something more to their consistent poor revenue performance in the PC market and it's not by accident. But this is typical of IBM as well...get you to buy their product then drop you like a rock when they decide not to continue that product line and sluff you off to some third party maintenance company that eventually goes out of business. This is why I've avoided IBM since the late 80's. I got tired of their crap in the 70's and nothings changed.
Posted by Ironhelix (2 comments )
Reply Link Flag
You are kidding right?
Are you on crack? IBM's ThinkPad line blows away everything else in quality and reliability. Its not always about top of the line specs!
When you have a laptop and you are on a business trip the last thing most are going to be concerned about is whether or not they have the latest and greatest video card in their freaking laptop.
IBM's laptop have been so rock solid you really could throw one down a flight of stairs and still expect it to at least function. Try that with a Dell sometime. I've seen Dells that don't survive a drop from a table let along a major spill like that.
But is it any wonder now a days? In this Walmart society cheap is what matters. Screw quality. I know that's what my company said when we went from Compaq to Dell. Three years later I'm amazed at how ****** these Dell Latitudes are. We are having these POS fall apart left and right. Bad hard drive here, bad mobo there, bad video card over there, actually had a leaking LCD screen last summer that was a first.
Since then we moved over to the T41/42 series ThinkPad. I'll let you know where we are at in 4 years.
Posted by Jonathan (832 comments )
Link Flag
ThinkPad will be a tremendous LOSS!
I have used a (five in total) ThinkPad since 1992! My first one was built in Japan and might be considered a prototype of what came later.

Each one was better than the prior one and the TrackPoint is infinitly better than a mouse -
better control and a reduced footprint.

I am writing this on a mode A22M which is dual bootable in SuSE (Novell) Linux 9.2 and Windows 2000. I hope that I will be able to purchase a new ThinkPad next year - one that has the IBM quality behind it - not one made where I live.

Rick Liu
Posted by (2 comments )
Reply Link Flag
Damn, what a loss...
I was planning on retiring my Toshiba Satellite for a Thinkpad T42 in the next six months and look what IBM does to me :(

Now I have to consider Apple and Fujitsu (I don't like to be in the 'control' of one brand in h/w AND s/w)...
Posted by Soliton (39 comments )
Link Flag
Only companies like Gateway will think can get back to profit from PC.
Currently with the cheap ass Dell computers on sale. Who want
to compete with them. Dell just suck ass bad. I read that the
computers they supply to Universities failed one after another
since a few weeks ago. The PCs these companies sells are not
reliable at all. To stay in such a business will either lose money
or get bad reputation.
Posted by audiophilecc (65 comments )
Reply Link Flag
SON OF A $#(@*#@#@#@$
Dang it. The IBM ThinkPad is the best laptop around in terms of quality and reliability. I was looking to upgrade my Toshiba laptop next Summer. It was a serious tossup between an IBM ThinkPad and a ,hopefully, revamped PowerBook. (come on Apple where the heck are the G5 PowerBooks!!!) Dell is not an option. I've worked in sites that use Dell. The quality is so low I'm seriously amazed at how many service calls we've made over the last year. So that leaves me with probably a PowerBook...Maybe a Sony. :x( Not good. We are losing a major player here. Not good at all.
Posted by Jonathan (832 comments )
Reply Link Flag
IBM notebook not made by ibm for a while
Don't you know that ibm's notebook an't make by ibm any
longer? anyway, moving to powerbook is definitely a good
choice
Posted by audiophilecc (65 comments )
Link Flag
Story is only a week late...
I am surprised this story is just now appearing on C/Net. I read this story last week in RTP.

<a class="jive-link-external" href="http://www.triangletechjournal.com/news/article.html?item_id=771" target="_newWindow">http://www.triangletechjournal.com/news/article.html?item_id=771</a>

I'm not sure who their sources were, but it seems correct in most of the details.

--RTP worker
Posted by SleepyHollowUSA (3 comments )
Reply Link Flag
am surprised
<a class="jive-link-external" href="http://www.analogstereo.com/xm_samsung_helix.htm" target="_newWindow">http://www.analogstereo.com/xm_samsung_helix.htm</a>
Posted by Ubber geek (325 comments )
Link Flag
Timeline
Can anyone remember when in the early 1980's IBM could have purchased Microsoft for $100,000? My first entry into computers was in the mid 1980's with the truly primative Vic 20 and my first real computer primarily used for a business venture was in the summer of 1989 with a Northgate 386 SX16, 1 mg of RAM built into Motherboard, 65 MG Hard Drive, 3.5 &#38; 5.25 floppies and a DOS 4.01 OS, 14" Monachrome screen. Also I bought WordPerfect 3.0 and Paradox Database software long before Microsoft "borrowed their source code" to create their inferior clones.I purchased separately a data/fax modem with a top speed of 14.4 bauds.

What should have been on the timeline was the birth of AOL. Does anyone remember when AOL came on the scene? Othere than the introduction of Windows 3.1, I think AOL help contribute to the growth in sales of the PC by the common man. Anyone that had to deal with the DOS operating system knows that all to well. I didn't upgrade to Win3.1 until I had gone through DOS 4, 5, 6 &#38; 6.2. I know I was on the internet by 1993 and AOL by I believe in 1994, then in the fall of 1995 or 1996 AOL was growing too fast and their equipment couldn't keep up with the growth and they were crashing daily and by then my phone company began offering internet service and I jumped away for good.

I also upgraded my original computer getting first larger Hard Drives 200mg then 400mg before entering the gig era with a 3.2 gig Hard Drive around 1996. RAM was very expensive and my original motherboard didn't have slots for RAM, so I had to attach what was called a Boca Board with 8 Mgs of RAM on it for athe odd total of 9 mgs of RAM, but I had for quite awhile more RAM than most of my friends. I got my first VGA video card and color monitor in 1993 and I believe I didn't get a mouse until 1994 when my 386 motherboard died and I upgraded to a 486 DX2 32. I began buying on the EGGHEAD auctions in 1998 barebone computers and building my own computers after a DELL Pentium II 450 crashed twice in 1998 and it wasn't until 2000 I bought on a uBid auction my first Pentium III class computer and this year my first Pentium 4 HP Wireless Laptop. What a wild ride it's been!!!
Posted by Foggy (32 comments )
Reply Link Flag
Bad news for IBM
Almost as unprofitable for IBM as its PC sales have been its 'SME' business -- selling to companies with fewer than 500 staff. The withdrawal of IBM from the PC business will put an even bigger question mark over its SME sales operation.

When Gerstner joined IBM in 1993, he quickly re-configured the company to cater for the needs of IBM's 100 biggest customers. These were the customers he visited and listened to when he was looking for a new vision, despite his statement that it was the last thing IBM needed.

Over subsequent years, IBM has continued to concentrate on large enterprises, while making a series of confusing statements and frankly half-baked moves in the small business market. While the bulk of the small business market wants Dell-like products (low-price, good-enough, standardised offerings), IBM continues to preach On Demand, a vision of a future so distant that few even of IBM's largest customers have bought into it.

IBM has given little impression of practicing an integrated approach to management. It has seemed an organisation riddled with internal conflict -- between the consolidators who believe in high-profit offerings for large enterprises and the predators who have been tasked with winning business in sometime high-growth segments, such as SMEs, dot-coms etc. Now the consolidators seem to have won.

Or rather the MBAs have won. CEO Palmisano says that over 50% of IBMers have worked for less than five years in the company. These guys have had little time to develop an awareness of the interrelationships between various parts of IBM's business -- e.g. that one way to penetrate the enterprise is often to sell the customer some PCs. The corporate strategy guys in IBM, led by a failed pSeries general manager, and advised by consultants and bankers who will make much more money if IBM sells off its business, seem to think that you can leave IT markets as soon as they look unprofitable, without regard to the knock-on impact on other IBM businesses or business partners. Long-term market commitment means nothing to them.

This is bad news for IBM, and bad news for IBM business partners, particularly at this time of year when so much of IBM's business comes in. HP must be shouting to the rooftops. Suddenly the PC market looks like it could become profitable, with one fewer major brand playing. Who is going to buy an IBM PC now that IBM has failed to flatly deny the rumour? The fact is that the last thing the PC market needs is another minor PC brand. IBM PCs were already made by a third party. If they no longer carry the IBM logo, what are they worth?

The PC division is worth far more inside IBM than outside.
Posted by (1 comment )
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