IBM Sells PC Business in Blockbuster Deal

As expected, IBM announced late yesterday that it will sell its PC business--including its "Think" lines of desktop and notebook computers--to China-based Lenovo Group for $1.75 billion in cash, stock, and debt. IBM will take an 18.9 percent stake in Lenovo, which will open new US headquarters for the business in New York. Despite making what is clearly a hasty exodus from a commoditized PC business that IBM created more than 20 years ago, executives from the computer giant remain positive about the deal.

"Today's announcement further strengthens IBM's ability to capture the highest-value opportunities in a rapidly changing information technology industry," IBM Chairman and CEO Samuel J. Palmisano said. "Over the past several years, we have aggressively repositioned IBM to be the world's leading provider of innovation-enabled solutions for businesses and institutions of all sizes, in all industries ... At the same time, the PC segment of the industry continues to take on characteristics of the home and consumer electronics industry, which favors enormous economies of scale and a focus on individual users and buyers. Today's announcement further strengthens IBM's focus on the enterprise, while creating a new global business that is better positioned to capture the opportunities in the PC industry going forward ... We have worked very carefully with Lenovo to put in place all the elements of a strong, successful, enduring global alliance. IBM will continue to provide our clients with outstanding IBM- and Think-branded PCs through our alliance."

With the deal in place, Lenovo becomes the world's third-largest PC maker, behind Dell and HP. Lenovo retains the rights to use the IBM name and brands for the next 5 years, and will retain the 10,000 IBM employees--many based in Raleigh, North Carolina--that design and develop IBM's PCs and notebooks. IBM will continue to handle technical support and warranty coverage for its former PC business.

IBM's decision to bail from the PC market might be just one of many such changes in the PC industry (the first, arguably, was Compaq's merger with HP). While PC makers such as Dell and HP arguably benefit from IBM's departure, things aren't so rosy at number-two PC maker HP, which has been wracked with operational complexities since its merger with Compaq.

This week, HP CEO Carly Fiorina admitted to financial analysts that the company's board voted three times about whether to break up the company but decided each time not to do so. Some within HP feel that the company's consumer and business organizations should be split into two companies. And although its printer business accounts for 30 percent of HP sales, the business generated more than 80 percent of the company's profits last year. Clearly, other parts of HP are dragging down the profitable bits, and debates continue to rage, both within and outside the company, about the merits of maintaining the company's current size and complexity.