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IBM's PC division 'for sale'

Tags:
Legend,
IBM,
Lenovo

John G. Spooner and Martin LaMonica CNET News.com

Published: 03 Dec 2004 17:30 GMT

IBM, which gave legitimacy to the personal computer business in the 1980s, is said to be negotiating the sale of its PC unit in a move that could reshape the industry.

The company is negotiating with Chinese manufacturer Lenovo Group, formerly known as Legend, and at least one other buyer to sell its PC business unit, according to a report in Friday's New York Times. The unit could fetch as much as $2bn, the report said. IBM spokesperson Clint Roswell on Friday said that the company's policy is not to comment on rumour or speculation. Representatives at Lenovo were not available to comment.

In morning trading, IBM's stock was up 1.28 percent to almost $97.

Exiting the PC business or establishing a joint venture in China would make sense for both companies, analysts said.

Such a deal would free IBM, which has been moving away from commodity products, from managing a difficult and often money-losing venture, while still giving it access to desktops and notebooks to provide to its customers.

"The PC business is a sort of also-ran, me-too sort of business [for IBM]. There are a lot better businesses, including global services and some of the larger computers, that IBM participates in," said Roger Kay, an analyst with IDC. An agreement would "get IBM out of what they think of as a non-strategic, non-yielding business".

Other analysts said that a joint venture, rather than an outright sale, would make more sense for IBM. "While we believe IBM is seeking to enhance [its PC group's] profits, Big Blue may not elect to sell the entire business and could structure a creative deal in pieces or in terms of distribution," said a research note released Friday by UBS Securities analysts.

The report warned that IBM needs to be wary of the potential to lose sales to corporate users, as competitors may use their PC sales as a means to land the more profitable and large deals that involve servers and software.

Recurring rumours
The fate of IBM's PC business has been a source of recurring speculation for years. Former CEO Lou Gerstner, largely credited with turning the company around in the 1990s by emphasising computer services, was said to favour a move away from PC hardware. IBM's 1998 annual report included a subsection titled The PC era is over, leading to widespread speculation that IBM -- the company that invented the modern PC industry -- intended to sell off its PC operations.

The company later denied that it had any plans to completely abandon the PC business. But speculation continued among Wall Street analysts and other company watchers as PC profit margins began to shrink.

Eventually, IBM chose to exit the consumer PC unit almost entirely to focus instead on the corporate audience, where the company's strategy has been to design hardware more technically advanced than competitors' offerings.

Consolidation within the PC industry is inevitable, according to market watchers. As many as three of the top 10 PC manufacturers may be forced out of the global PC market by 2007, according to a report issued earlier this week by market research company Gartner.