IBM turns to outsourcing to staunch PC losses

9 January 2002 IBM has announced the sale of its desktop computer manufacturing business in the US and Europe to contract manufacturer Sanmina-SCI.

The deal represents the latest attempt by the hardware giant to staunch the flow of big losses from its PC division. Some analysts have suggested that the company that invented the PC in 1981 should close the division as a result of its failure to turn a profit from selling the products.

The three-year, $5 billion (€5.6bn) outsourcing contract for IBM’s NetVista line of computers comes on the back of declining sales in its PC and printing division and is intended to cut costs while helping the division to better manage growth.

While IBM has turned to outside manufacturers in the past for production of desktop and notebook computers, this fresh deal represents a symbolic retreat for the company. “Since these guys created the market, this is a little embarrassing,” said IDC analyst Roger Kay. “But I think they got over that long ago.”

IBM abandoned the retail market in 1999 and now sells to consumers solely through its web site, yet it still remains the number four desktop PC vendor behind Dell, Compaq and Hewlett-Packard (HP) with a market share of 5.4%, according to IDC.

“This [deal] is part of a long-term trend,” Gary Helmig, an analyst at Soundview Technology, told Reuters news agency. “You can go back to the 1980s with the mainframe, when final assembly and test was all IBM did. One of the things that does is you don’t have the exposure to the peaks and valleys.”

But the Armonk, New York-based company is not getting out of the PC business completely. It will continue to make desktop computers in China for the Asian market and in Mexico for the South American market. It will also carry on handling the design and marketing of all its computers and will continue to make its own laptop computers – its fastest-growing computer unit.

Sanmina-SCI, the world’s third largest contract manufacturer of electronic products, is a major producer of PCs for HP and makes circuit boards for other PC vendors.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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