IBM Sells PC Unit to China’s Lenovo

There was a time when a person bought an IBM computer for the office because, well, no one ever got fired for buying from IBM. The IBM XT was cutting edge technology once upon a time, with a CGA graphics card and a 20 MB hard drive. But the personal computer market has become a commodity business in the 21 years since the XT turned up. So, IBM called it quits and sold its PC unit to Lenovo, a Chinese company. Both sides win.

The price tag of just $1.25 billion isn’t going to rival the Cingular/AT&T Wireless deal, but it allows IBM to get out of a money-losing business. And Lenovo moves up the ladder from 8th biggest PC maker on the plane to 3rd. Dell and HP are still bigger, but Lenovo also gets IBM’s brands, like “Thinkpad.” It also acquires IBM’s shares in Great Wall Technology, a joint venture, which enhances Lenovo’s position in China.

Moreover, Lenovo will be hiring thousands of IBM workers and moving its offices from Beijing to New York. This infusion of occidental influences will not alter the Chinese heart of Lenovo, but it will go a long way toward making it a global entity rather than a Chinese company operating on a global scale. This makes it battle for market share in China a bit easier. (Since when do Communists worry about market share? Perhaps the only thing that is Communist about the People’s Republic of China is its repressive nature).

IBM won’t be leaving the computer world, though. The fat margins are in software and in services. After all, Microsoft became what it is by selling software not computers. Other personal computer manufacturers have seen the same handwriting on the wall. Toshiba is under pressure to make money with its PC unit or sell it, as is HP. Some analysts believe that of the top 10 PC makers in the world, three will be gone from the market in just 2 years.

Indeed, the only one that is fated to stay is Apple. With its unique operating system, its products don’t commoditize the way the others do. For everyone else, computer making is just like auto manufacture now – getting parts put together at the lowest price and doing volume business.

© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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