December 3, 2004 8:03 AM PST
IBM said to be eyeing a sale of its PC business
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.
After coming close to disaster, Big Blue regained its status as an industry leader. How long does the momentum last?
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 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.
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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