IBM Reportedly Set To Sell Its Personal Computer Business

Big Blue might be ready to lose another key link to its hardware legacy.


IBM (NYSE:IBM - News) reportedly plans to sell its ailing PC business.


If true, analysts say that leaves plenty of questions hanging. Chief among them is how the move would impact IBM's services and hardware businesses.


Yet many industry observers have long expected such a move from Big Blue.


"IBM's been losing money in PCs, and it makes sense that it would sell its PC business," said Carris & Co. analyst Mark Stahlman.


The New York Times first reported Friday that the world's largest computer company is in talks to sell its PC business to several potential buyers. The paper named only one, Lenovo, formerly Legend, China's biggest PC maker. The Times, citing sources close to the talks, said the selling price is expected to be $1 billion to $2 billion.


The sale is said to include IBM's entire desktop, laptop and notebook computer product lines. IBM wouldn't comment.


Services is now more than half of IBM's biggest business. PCs have been a drag on the company's bottom line for years. In late 1999, it pulled out of the PC retail business.


"IBM is betting its future on services," said a source close to IBM, who would speak only if not identified.


PCs made up $11 billion of IBM's $92 billion in sales the last four quarters. The field's become more commoditized and is led by low-cost direct-sales vendor Dell (NasdaqNM:DELL - News).


IBM placed No. 3 in third-quarter PC shipments worldwide with 6% of the market, behind Dell's 18% and Hewlett-Packard's (NYSE:HPQ - News) 16.1%, says research firm Gartner.


Big Blue created a product -- the PC -- that was so good that many others jumped in and "IBM couldn't keep up," said George Jones, the editor of Maximum PC magazine. "It seems Dell's going to be the gorilla in this space."


Analysts say one question is whether IBM will also exit the server business. Like PCs, servers are becoming commoditized.


IBM faces stiff competition from HP, Dell and others. And there is a precedent. IBM already has shed a key hardware unit, selling its disk drive business to Hitachi (NYSE:HIT - News) in 2002.


But few expect IBM will sell its server business soon. It's a moneymaker. IBM said third-quarter server revenue rose 9% to $4.1 billion. Gartner says Big Blue is No. 1 worldwide in servers.


IBM prides itself on offering all-encompassing packages that include hardware, software and services. PCs and servers are key components. But Stahlman says IBM would have no trouble using PCs from other makers as part of any total solutions package.


Moreover, analysts aren't ready to jump to any conclusions. They say it's possible IBM's talks with Lenovo would feature an original equipment maker relationship. That is, it could sell the PC business to a company such as Lenovo, which would manufacture the machines.





But then IBM could, for example, still slap its ThinkPad logo on laptops and resell those machines under its own brand name.

At least one observer believes this is the case.

"This sound like what IBM's doing," said Maximum PC's Jones.

IBM's deal also could require the buyer of the PC business to buy chips and other personal computer technology from IBM.

That could well be the case, analysts say. IBM's PCs, after all, feature IBM technology.

Analysts present still another scenario.

It's possible, they say, that IBM would team up with the buyer of its PC business to jointly develop more advanced PC products.

That way, IBM could share the costs and avoid some of the risks.