IBM is nearing close of most famous role

Big Blue appears poised to move away from the personal computer business it helped invent in favor of consulting and other big-ticket services.

December 04, 2004|By COX NEWS SERVICE

Sam Palmisano's vision for International Business Machines Corp. has been clear almost from the day he took the reins from legendary former Chairman Louis V. Gerstner Jr. two years ago:

Don't worry so much about low-profit businesses like personal computers. Focus instead on big-ticket endeavors like consulting, end-to-end business solutions for customers and something IBM calls "business performance transformation services."

Now, it looks like IBM may be on the verge of its biggest transition ever by moving away from the PC business it helped invent more than 20 years ago.

A report yesterday in The New York Times that IBM was considering a potential sale of its PC business to Lenovo Group Ltd., the Beijing-based company formerly known as Legend, affirmed months of buzz in the computer industry about such a move.

The IBM name, one of the best-known brands in the world, won't likely disappear. But a deal would mark the end of an era started in 1981 when IBM helped ignite the PC revolution with desktop computers that came with 64 kilobytes of memory, a single floppy drive and cost more than $2,600.

Officially, IBM isn't talking. Spokesman Clint Roswell said, "IBM's practice is not to comment on rumors or speculation."

But regardless, just as Palmisano's vision for IBM is clear, so is the picture of the PC industry's future as a commodity business dominated by a shrinking number of players.

"The industry has been going through a consolidation for a decade and it will continue to go through consolidation for another decade," said Roger Kay, an analyst with International Data Corp., a technology research firm. "This is simply just another step along the way."

Dell Inc. and Hewlett-Packard Co. long ago wrested the leadership position in the PC business from IBM domestically and around the world.

But IBM is still the No. 4 producer of PCs and servers in the United States and No. 3 in the world, according to IDC.

In part because it still is so well-known, analyst Kay said he thinks Big Blue won't sell off its PC business entirely, but will more than likely enter into a partnership with Lenovo or some other manufacturer.

When IBM goes into a client to offer end-to-end business solutions packages - everything from software and back-office computer servers to sales and supply chain consulting - it also wants to offer them new desktops and laptops with its name on them, Kay said.

If it doesn't do so, IBM could lose business to HP and other companies that also offer and emphasize such package deals.

But even though IBM - like most PC makers - has farmed out its manufacturing to overseas suppliers, the company also probably no longer wants the hassles and expenses that come with running a PC business since the potential profits today are low.

Lenovo, on the other hand, can make computers cheaply. But it doesn't have nearly the marketing strength, the global reach or the reputation of IBM.

"It points heavily in the direction of a joint venture where the IBM brand survives," Kay said. "And you can see why it would be good for both of these parties."

IBM's PC business has always prided itself on research and development and design, which today is done mainly at a sprawling campus in Raleigh, N.C. It also designs software and does other work in Raleigh.

But as prices continue to drop and PCs become as commonplace as TV sets or telephones, costly R&D and design is less important than making products cheaply, said Gartner analyst Mark Margevicius.

"While PCs may not be entirely a commodity yet, the winners in this space are the ones who can deal like commodity players," Margevicius said.

Some analysts said they wondered if IBM wouldn't have too much to lose if it sold off its PC business.

"The customer base that IBM has is very closely tied to the IBM brand," said consultant Rob Enderle. "Their machines sit on the desks of board members and CEOs and senior employees at customer companies, and none of these people would be happy if IBM did this."

If IBM does sell all or part of its PC business, the direct effects will likely be limited mainly to Raleigh because, other than the R&D and design work, most of its PC operations are overseas.

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