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Wednesday, December 08, 2004

IBM a Sellout
We noted its intention earlier, but yesterday IBM finalized the sale of its PC division to Lenovo, China's largest PC maker. As well as the $1.75 billion in cash, IBM gets an 18.9% share of Lenovo --which is partly owned by the Chinese government, according to the NY Times. Says the story, "Under the agreement, I.B.M. will continue to handle technical support, financing and warranty coverage globally for its former personal computer division. Those tend to be steady and profitable cash-generating businesses, even as the PC business itself has been only intermittently profitable for I.B.M. lately." See? There are benefits to outsourcing... On the bright side, Lenovo will open an office in New York.

--Read Michael Dell's Negative Comments on the IBM/Lenovo Deal
Sneak preview, he claims it "will never work." Didn't Bill already say that?!

# Permalink Posted at 7:22 AM 6 comments Email this Link

Comments on this Item:

Smart move from IBM..retain the high margin annuity services and financing business..more stable ..more predictable..the street will be happy...no missed forecasts (not that IBM misses them a lot)..on the lighter side...a part of a foremost american icon has been sold off to China...the boundaries are shrinking...economics drive politics ..hopefully the THINKPADS survive this event.

# posted by Anonymous 8:59 AM

Thought manufacturing of Thinkpads was already outsourced....

I agree, the joint venture may not work out, but IBM itself will come out better. PC hardware is going to be much like the home electronics industry - low margins, not much to differentiate one product from another beyond cosmetics. The money isn't in making boxes, it's in making the boxes work with each other.

Kevin.

# posted by Anonymous 9:24 AM

True, Kevin, but one has to wonder why JP Morgan Chase recently dumped IBM as its support/service provider.

# posted by Bill 9:31 AM

I don't know if I'd read too much into that on it's own, Bill. Companies change IT providers for a variety of reasons - one defection (or ten, or whatever) does not mean that the business is a bust and everyone should dump their shares while they still can. They may very well lose one account and gain two more somewhere else.

If IBM starts losing IT customers en masse, then they're in trouble, but an occasional customer defecting is a normal part of life - it's rare for a customer to use the same supplier / service company forever and ever amen.

And none of this has anything to do with the fact that selling commodity hardware at 3% margins was not part of their business model anymore....

Kevin.

# posted by Anonymous 12:27 PM

With all the Wall Street chatter aside, I can't help but feel IBM's sellout to China is just more of the same. Quality, in my opinion is about to drop like the proverbial lead balloon. I've had plenty of defective items made in China. Cheap, yeah cheap!! This is how I see the direction of IBM PC's. I have Dell equipment these days, but I was weaned on IBM Aptiva and Thinkpad and I'm disappointed. Yeah, it's a shrinking world information wise, but some of these countries have a long way to go with quality manufacturing. Thanks

# posted by Ira 4:25 PM

Apropos of nothing in particular, the Dell laptop I'm writing this on was made in Malaysia - which is where all the laptops they sell in the US are made.

Kevin.

# posted by Anonymous 8:37 AM

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