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End of an Era : IBM bow out of PC Market
3:12pm Tuesday 4th January 2005 in Freetime
It sounds like a humiliating retreat for IBM that started and introduced the ORIGINAL' pc in 1981. IBM has decided to sell its PC division to China-based Lenovo and take a minority stake in the former rival in a deal valued at $1.75bn, the companies announced this week (end of December 2004).
The two companies plan to form a complex joint venture that would make Lenovo the third-largest PC maker in the world, behind Dell and Hewlett-Packard, but still give IBM a hand in the personal computer market.
The revenue for Lenovo will give it approximately US$12 billion annual revenue for 2003+. A global business with worldwide reach, powerful brand name, balanced product offerings and leading R&D capabilities.
There will also be long-term strategic alliances between Lenovo and IBM in PC sales, service and financing worldwide. The worldwide headquarters in New York; with principal operations in Beijing and Raleigh, North Carolina .
A transaction of US$1.25 billion in cash, equity; total transaction consideration of approximately US$1.75 billion. IBM will take a 18.9 percent equity stake in Lenovo; transaction expected to be completed in second quarter 2005 This is a coup for Lenovo who will be able to offer products to consumers and business at a more competitive rate then some of the competitors out there.
In January 2003, IBM began its retreat from the PC market by outsourcing manufacturing to Sanmina-SCI. As a result of that deal (and one with Solectron), more than two-thirds of IBM's Intel-based product manufacturing has been outsourced.
IBM's share of the market it created back in 1981 has steadily dwindled over the years. In a recent Gartner research report on PC sales, IBM was reported to hold only 5.6 percent of the market, placing it a distant third behind Dell at 16.8 percent and HP at 15 percent.
Out of IBM's annual revenue of $92 billion, the PC business represents approximately 12 percent.
Either way, the deal ultimately hinges on the use of the IBM brand. Without that name, or others, such as 'ThinkPad', the company has little to offer beyond facilities.PCs used to be a crucial part of any big, corporate technology urchase because they were expensive and proprietary.
Buying PCs, servers and other back-end equipment from the same vendor was often the only way to ensure all the parts worked together.
Then PC-makers standardised parts, from networking ports to keyboards.
Today, nearly all PCs have the same components and work the same way. Competing brands are sometimes manufactured in the same Asian factories.
Is it going to be better with less or more competition in the business. IBM may have found a good way to focus on the software market on product and services rather then hold itself back on personal computer technology which today is seen as a commodity with a limited lifespan. For now, however, HP will stick to its strategy of being a single company offering a comprehensive range of products and services. We will have to wait and see the changes and product lines in the future from Lenovo.