By INQUIRER staff: Wednesday 08 December 2004, 07:50
BIG BLUE confirmed it has sold its PC division to Lenovo - barring X86 servers - for $1.25 billion, while taking a 19 per cent share in the Chinese company formerly known as Legend.
The move marks not only the end of IBM's long adventures in the PC business but a clear shift in the centre of gravity of the industry from the US to China.
The $1.25 billion Lenovo will pay is a mixture of cash payments and shares, with Big Blue holding 18.8% of Lenovo's business. IBM will retain the right to provide services for PCs, while the head of its Personal Systems Group will become a top gun in Lenovo once the deal has been approved.
IBM's CEO Sam Palmisano said that Big Blue salesmen would continue to get commission on sales of Lenovo machines and his company would continue to use these machines within its own business.
IBM introduced its rather functionally deficient PC in 1981 and the introduction of Lotus 1-2-3 for the machine made it an option for corporate buyers. The mantra used those days was that no one ever got fired for buying IBM, and personal computers started to become acceptable in business environments.
The growth of the PC in corporate environments catapulted a number of hitherto obscure firms into the limelight, including Intel and Microsoft, and, later on, Compaq and Dell.
Although IBM attempted to forge a partnership with Microsoft in 1987 to create OS/2 as a real OS system rather than the brain dead DOS, eventually that partnership died a death and the Seattle firm decided to push its own graphical environment, Windows.
Despite Big Blue having its own suite of desktop application software, other companies including Lotus, Ashton Tate, Wordperfect, Wordstar, Borland and eventually Microsoft, were able to understand selling such packages far better than IBM. At one time, IBM charged customers well over $1,000 to write PC printer drivers for non-Big Blue devices.
IBM's idea in 1987 was that it could continue to dominate the PC market with the introduction of its own proprietary hardware architecture, MCA. But no one was fooled by that and droves of potential customers flocked to a rapidly growing set of clone PC manufacturers.
Big Blue continued to turn over around $10 billion a year on sales of its notebooks and desktops, and the sale to Lenovo will put the Chinese firm into the third biggest vendor of these machines worldwide after Dell and Hewlett Packard. Ten thousand IBM employees will be transferred to Lenovo, a quarter of those are based in the USA.
"IBM's CEO Sam Palmisano said that Big Blue salesmen would continue to get commission on sales of Lenovo machines and his company would continue to use these machines within its own business."
What a riot! I love it at this point. The IBM snakes I knew from the sixtees and seventies... ha ha. I could tell some stories about how IBM tried to convince the world on their their supposed state of the arts technology during various phases. But I won't. I did once a few days back then decided it was not right. Honest hard working previous or current IBM folks may read it. But IBM continues to work on the premise or so it could appear, that their salesmen are their life blood, which they truley where for many years. You might say they valued their salesmen more then their research scientist. At any rate, I feel sorry for all those that will lose their job at IBM over the next two years or so, once the hatchet yet again starts to fall.
Now wait tell we hear a deal going down for some Chinese company making a deal with Sun Microsystems. Then the gig is really really over folks! Hey then throw in Silicon Graphics, Dow Chemical, shoot, no problem, Zerox, you bet. We can do. It is a bit scarey ah.
The design sure looks polished off, but somehow does not appear so threatning now. Surely Big John Kerrys's back side would not get as ruffled with that "clean hull design".
There are three main forces at work here.
First, US companies are chomping at the bit to get into China but are having hell tapping the market there. Who else better to do that than the Chinese?
IBM just placed itsself as a rider on a Chinese company being able to effectively tap China. Its much more important to them than selling their PC division.
Two, the PC industry is playing out in large part. Its not what it once was in many ways. Of course it still has life, but PCs are becoming commodity items, especially in the west.
Third, China has a desire to expand from manufacturer to actual businessman. They want to have their corporations with a global reach and fully move up into what other countries have been doing for years. They are in essence wanting to move up the chain into an investor class, of sorts.
There have been several brands of Chinese origins that have done this already, and more are on the way.
In essence IBM is getting rid of its baggage and is picking up part of a company that is dynamic to China. The Chinese are also picking up insta-global presence.