IBM is putting its PC business up for sale, according to reports in today’s New York Times. The newspaper cites unnamed sources close to the negotiations
The IT systems and services giant made its first PC in 1981, an event that changed the history of the computer business. But according to the newspaper, the company is now in discussions with Chinese company, Lenovo, about a deal likely to bring between $1 billion and $2 billion into IBM’s coffers.
PC sales account for about 12% of IBM’s annual revenues of $92 billion, but analysts have long recommended it abandon the sector where it makes only slender profits or losses. Pre-tax profit for 2004 is expected to be under $100 million – one of the few years in which the business actually made a profit.
IBM’s chief executive Samuel Palmisiano has made strategic decisions to sell off sectors where profits were slim and growth opportunities lacking. For example, IBM’s hard disk drive business was sold to Hitachi in 2002.
The possibility of the sale lends weight to Gartner Research’s recent prediction that three of the top 10 PC vendors would withdraw from the market by 2007. Indeed, analyst Leslie Fiering named IBM’s PC division, along with Hewlett-Packard’s, as one vulnerable to being sold off if its “drag on margins and profitability is deemed too great.” Currently IBM lies third behind Dell (16.8%) and HP (15%) with a 5.6% share of the world’s PC sales.
In contrast, Fiering saw Lenovo, China’s largest manufacturer of PCs, as being “well positioned to leverage its strong local-market standing and low-cost operating models into a global presence.”
IBM has gradually retreated from the manufacture of PCs, selling its desktop PC manufacturing operations in the US and Europe to Sanmina-SCI in January 2002. It now contracts out the manufacture of its desktop computers around the world.
IBM has refused to confirm or deny the story.