Sat, Dec 04, 2004 - Page 1 News List

IBM to put PC business on the market

END OF AN ERA Bowing out of the PC business it helped create, Big Blue is reportedly in negotiations with China's Lenovo and another potential buyer


International Business Machines, whose first IBM 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 deal said Thursday.

While IBM 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 mark the end of an era in an industry that it helped invent. The sale would include the entire range of desktop, laptop and notebook computers made by IBM.

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 PCs these days are Microsoft and Intel -- whose software and chips are the standard for most of the personal computers sold, regardless of the maker.

Indeed, in the 23 years since IBM 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 rights to those standards. And although Apple Computer holds only about 2 percent of the computing market, 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.

According to the executives, IBM is in serious negotiations 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 IBM, Edward Barbini, said Thursday night, "IBM has a policy of not confirming or denying rumors."

A sale of the personal computer business would be a step away from IBM's traditional emphasis on the size of its revenues as a measure of its corporate clout. The PC business represents about 12 percent of IBM's annual revenue of US$92 billion.

For nearly a decade, though, some industry analysts have urged IBM to get out of the personal computer business as it made only a modest profit or lost money. For this year, analysts have expected a pretax profit of less than US$100 million. IBM executives long resisted that course, arguing that personal computers were one of the technology products its corporate customers wanted. IBM held onto the business on the theory that it helped IBM hold on to customers.

But in the most recent quarter, IBM 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 had 15 percent.

A sale now, if it were to happen, would be consistent with the strategy pursued by Samuel J. Palmisano, who became IBM's chief executive in early 2002. He has sold off hardware businesses where profits were slender and growth prospects were limited, like its hard-disk drive business, which was sold to Hitachi.

Instead, 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. IBM now casts itself as a company that not simply sells 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, IBM bought PricewaterhouseCoopers Consulting for US$3.5 billion, in a deal that closed in Oct. 2002.

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