IBM said to be eyeing a sale of its PC business

After years of frustration, Big Blue looks to sell its PC unit to Chinese manufacturer Lenovo, according to a report.

IBM, which gave legitimacy to the personal computer business in the 1980s, is said to be negotiating the sale of its PC unit in a move that could reshape the industry.

The company is negotiating with Chinese manufacturer Lenovo Group, formerly known as Legend, and at least one other buyer to sell its PC business unit, according to a report in Friday's New York Times. The unit could fetch as much as $2 billion, the report said.

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IBM spokesman Clint Roswell on Friday said the company's policy is not to comment on rumor or speculation. Representatives at Lenovo were unavailable for comment.

In morning trading, IBM's stock was up 1.28 percent to almost $97.

IBM selling its PC business to Lenovo, which would most likely result in a joint venture of some sort, would make sense for both companies, analysts said. Such a deal would free IBM--which has been moving away from commodity products--from managing a difficult and often money-losing venture, while still giving it access to desktops and notebooks to provide to its customers.

"The PC business is a sort of also-ran, me-too sort of business (for IBM). There are a lot better businesses, including global services and some of the larger computers, that IBM participates in," said Roger Kay, an analyst with IDC. An agreement would "get IBM out of what they think of as a nonstrategic, non-yielding business."

The PC era: 1981-present
Two-plus decades have brought major changes to the PC industry. Here's a glimpse at some of the significant events:

• IBM announces the 5150 PC, ranging from $1,565 to $4,500.

• Commodore announces the Commodore 64 microcomputer.
• Columbia Data Products releases the first IBM PC clone.
• Intel introduces the 6MHz 286 processor.
• Sun Microsystems and Compaq Computer are founded.

• Apple Computer introduces the Lisa computer for $10,000.
• Compaq ships a 28-pound portable computer.
• Microsoft announces the Windows operating system.
• Sony unveils the 3.5-inch floppy disk, which holds up to 1MB of data.

• Apple introduces the Macintosh computer.
• IBM announces the PC-AT.
• Philips unveils CD-ROM players for PCs.
• The number of hosts on the Internet reaches 1,000.
• Hewlett-Packard enters the printer business.
• Dell Computer is founded.

• Microsoft ships Microsoft Windows 1.0.
• Gateway is founded as Gateway 2000.

• Microsoft goes public.

• Intel introduces the 20MHz 386 processor.

• Intel releases the 25MHz 486 processor.
• HP marks its 50th anniversary.

• The World Wide Web is born.

• Microsoft launches Windows NT 3.1.
• The number of Americans on the Net reaches 3 million.
• Intel introduces the 66MHz Pentium processor.

• Microsoft releases Windows 95 and Office 95.

Continued ...

Other analysts said that a joint venture, rather than an outright sale, would make more sense for IBM. "While we believe IBM is seeking to enhance (its PC group's) profits, Big Blue may not elect to sell the entire business and could structure a creative deal in pieces or in terms of distribution," said a research note released Friday by UBS Securities analysts.

The report warned that IBM needs to be wary of the potential to lose sales to corporate users, as competitors may use their PC sales as a means to land the more profitable and large deals that involve servers and software.

Recurring rumors
The fate of IBM's PC business has been a source of recurring speculation for years. Former CEO Lou Gerstner, largely credited with turning the company around in the 1990s by emphasizing computer services, was said to favor a move away from PC hardware. IBM's 1998 annual report included a subsection titled "The PC era is over," leading to widespread speculation that IBM--the company that invented the modern PC industry--intended to sell off its PC operations.

The company later denied that it had plans to completely abandon the PC business. But speculation continued among Wall Street analysts and other company watchers as PC profit margins began to shrink.

Eventually, IBM chose to exit the consumer PC unit almost entirely to focus instead on the corporate audience, where the company's strategy has been to design hardware more technically advanced than competitors' offerings.

Consolidation within the PC industry is inevitable, according to market watchers. As many as three of the top 10 PC manufacturers may be forced out of the global PC market by 2007, according to a report issued earlier this week by market research company Gartner.

Although IBM's PC business attained profitability this year, the company's overall strategy has been to move away from commodity products such as desktop PCs and laptops. Rather than compete with the likes of hardware supplier Dell on price, Palmisano is steering the company toward higher-margin businesses such as consulting services and software.

Palmisano has singled out business process outsourcing--in which IBM takes over some of a customer's functions, such as human resources and finance--as a $500 billion opportunity for the company. IBM has made a number of acquisitions to beef up its process

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