Outgoing IBM CEO Samuel Palmisano says IBM's divestiture of its PC business to Lenovo was good for Big Blue and strategic for its interests in China.
When IBM
announced plans in 2004 to sell its PC division to Chinese systems maker
Lenovo, the move was seen as controversial. However, Big Blue's outgoing CEO
Samuel Palmisano called the move successful and strategic to the tech giant.
In an
interview with
The New York Times, Palmisano, discussed the
$1.75 billion sale of IBM's PC unit to Lenovo in 2005-saying he thought IBM
needed to get out of low-margin, commodity businesses like PCs and disk drives
and get into higher-margin services opportunities.
The proposed
sale of the PC division drew criticism internally before the sale and also
scrutiny from the outside after the deal was announced. IBM insiders worried
that losing the clout of the PC division would have negative effects, such as fewer
sales of other IBM products without the PC as a driver, higher costs for parts
without the purchasing power of the PC group and dilution of the IBM brand.
However,
Palmisano responded to the criticisms with comparisons to Hewlett-Packard,
which has debated getting rid of its PC operations. "I've heard every one of
the arguments, every one of them," Palmisano told
The Times. "But if you decide you're going to move to a different
space, where there's innovation and, therefore, you can do unique things and
get some premium for that, the PC business wasn't going to be it."
Moreover, furthering
the HP comparison of IBM getting out of the PC business and HP getting deeper
in with its 2002 acquisition of Compaq, Palmisano added: "You see the choice
that was made, and how the economics worked out."
In 2005,
Michael Useem, a professor a the University of Pennsylvania's Wharton School of
Management, characterized IBM's sale of its PC business to Lenovo as
a "brassy move" that would give IBM better access
to the market for services in China.
Palmisano
acknowledged as much to
The Times,
saying he passed on offers from Dell and others to buy the IBM PC business and
settled on Lenovo for, as
The Times
article said, "strategic reasons: the Chinese government wants its corporations
to expand globally, and by aiding that national goal, IBM enhanced its stature
in the lucrative Chinese market, where the government still steers business."
Lenovo has
gone on to become the second-largest PC maker in the world, behind HP and ahead
of Dell, according to IDC.
Meanwhile, IBM
continues to focus on growth markets as one of its strategic areas of interest
with five-year plans and targets. Of these so-called growth markets, IBM tends
to look at the BRIC countries-Brazil, Russia, India and China-as leading
indicators. IBM reported that
during the third quarter of 2011
its revenue from its growth markets increased 19 percent. Revenue in the
BRIC countries increased 17 percent. Growth markets revenue represented 23
percent of IBM's total geographic revenue for the third quarter.
"Growth
markets delivered outstanding revenue performance across software, hardware and
services, and contributed to the company's expanded margins," Palmisano said in
a statement when the company announced its Q3 earnings Oct. 17.
On Jan. 1,
Virginia Rometty took over as IBM's CEO. Palmisano remains chairman of IBM.
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