News Review: IBM Sells PC division
IBM Sells PC division - but buys China - sounds like a good deal to me :)
What a number of commentators seem to have missed in the excitement about the sale of the IBM PC division is not what IBM have lost, but rather what they have gained.
Put bluntly, IBM now have a foothold in the Chinese economy which other companies would give their right arm (or even their PC division) for.
Silicon.Com writers John G. Spooner and Michael Kanellos have seen this, since their recent article says that the deal "...will also allow them to sell more services in China. If it goes through, the deal would allow IBM to continue its shift from selling so-called commodity products toward selling services, software and high-end computers." But this was only a couple of sentences in their article. In my opinion, it is far more than that.
Firstly, there is the decision to continue to use the IBM name on the new joint venture. This is a huge coup for IBM. By getting the IBM name known as a credible name in the oriental market, they immediately open the door for "real" IBM salesmen to start making service propositions. So who cares if they are from Lenovo or IBM ? The name is the same.
Secondly, IBM will take an 18.9 per cent stake in Lenovo. Which means that as the chinese market takes off, and Levono decides to diversify in to more profitable lines (PCs are not very profitable these days, lets face it), IBM will gain dividends from their activities. Not only that, IBM have the ability, as a major shareholder, to influence Levono - The Trojan Horse in the Chinese economy.
So what did IBM lose? Nothing, as far as I can see. Their name will still be on the third-largest commodity PC maker, which should be good for the IBM brand. Even the ThinkPad brand will continue. As the PC market hots up, IBM are shielded from any potential losses. Oh, and just in case you wondered, IBM get $650million in cash for the privilege, plus $600millions worth of securities. Not so much as win-win, as a I-win-You-lose deal.
PCs are no longer profitable. The days of innovation, when IBM pioneered the idea of a PC built from (shock horror!) non-IBM industry-standard parts, have long since gone. If you want to make your name as an innovator, then you need to hand the baton over to someone else to do the run-of-the-mill stuff. Given that viewpoint, it is perhaps surprising that IBM have taken so long to rid themselves of a non-strategic product.
So where does that leave HP and others? Realistically, the PC market is now with the likes of direct-sales organisations like Dell, or channels providers or retail outlets which are just as comfortable selling you a new Sky Satellite dish or Television screen. So I would not be surprised to see HP exit from this market soon.
Reviewed by Dennis Adams in December 2004