Analysts: Is Lenovo Right for IBMs PC Biz?

 
 
By Daniel Drew Turner  |  Posted 2004-12-03 Email Print this article Print
 
 
 
 
 
 
 

A New York Times report says IBM is negotiating the sale of its personal computer business to China's biggest PC maker. But analysts wonder what Lenovo thinks it would be buying—and how it could make PCs as cheap as those from rival Dell.

A report in The New York Times that IBM is poised to sell off its PC unit has provoked mixed reactions and tentative interpretations from analysts who follow the historic company. The Times story said negotiations of such a sale have progressed between Armonk, N.Y.-based IBM and Lenovo Group, Chinas biggest maker of personal computers, and at least one other unidentified buyer.
IBM has not itself manufactured PCs since 2002, when it sold its manufacturing operations. Like athletic-wear company Nike of Beaverton, Ore., IBM designs and markets the products bearing its name, while other companies are contracted for manufacturing.
IBM has long been moving toward becoming a service company, said Tim Bajarin, president of Creative Strategies of Campbell, Calif. In comparison with the companys business from consulting and services, which netted $3.2 billion in income and $36 billion in revenue for the first nine months of 2004, IBMs PC business took in well under $100 million on $9.4 billion in revenue. "I do believe IBM wants to get out," Barajin said, noting the increasing support costs and lower margin hitting all PC manufacturers. But he said he was surprised that Lenovo would be a potential buyer. "I assume the buyer would be the main supplier of PCs to IBMs customers," he said, and he wondered whether Lenovo could live up to the "long IBM heritage."
"Its an incredibly difficult issue," he said, adding that simply selling to the highest bidder wouldnt be a good move for IBM. "The buyer would have to be a partner, to ensure that the product quality wouldnt slip and that IBM would be able to service and support the product." Jim Louderback says IBMs PC retreat is good business. Click here to read more. "I dont know if itd be so smart a move," said Charles Wolf, an analyst at Needham & Company in New York. In 1999, Wolf wrote a report suggesting that IBM outsource all of its manufacturing—three years before it did so. "If indeed the buyer is Lenovo, they cant make the PCs any cheaper than Dell does," Wolf said. In addition, Wolf said he wasnt sure how Lenovo could break into the U.S. market, especially when competing against Dell and Hewlett-Packard. "Its a risky gambit," Wolf said, noting that though IBM makes little from the division, the company could be hit with a drop in its core business if customers see a drop in quality or reliability in a product tied to IBMs services and existing server offerings, as the current PC division is. Next Page: Writing off its PC business?



 
 
 
 
 
 
 
 
 
 
 

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