Palmisano: PC Biz Didn't Fit into IBM's On-Demand Model

By Jeffrey Burt  |  Posted 2004-12-09 Email Print this article Print
 
 
 
 
 
 
 

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In a memo to IBM's Personal Systems Group, CEO Sam Palmisano said the PC and on-demand businesses "are very different business and economic models, and they will diverge even further in the years ahead."

In the end, IBM's PC business no longer meshed with the on-demand technology model the company has been molding for the past several years, according to Big Blue's top executive.

In a memo sent to the employees of IBM's Personal Systems Group, Chairman and CEO Sam Palmisano said the company's decision to sell its PC division to Lenovo Group Ltd. came down to IBM's business strategy and the rapidly changing technology environment.

"IBM is an innovation company," Palmisano said. "We are committed to being the premier IT solutions partner for enterprises of all sizes, in all industries. This business model requires that we continuously create intellectual capital and that we reinvent everything we do—our technologies, products and services, our culture and our portfolio of businesses.

eWEEK gets a behind-the-scenes look at IBM's on-demand focus. Click here to read more.

"Today, computing and its uses are again changing radically—to what we've been describing as on demand business. This is opening up tremendous opportunities for IBM, and it's why we have invested billions of dollars in recent years to strengthen our capabilities in hardware, software, services and core technologies focused on transforming the enterprise. At the same time, the PC business is rapidly taking on characteristics of the home and consumer electronics industry, which favors economies of scale, pricing power and a focus on individual users and buyers. These are very different business and economic models, and they will diverge even further in the years ahead."

In the new joint venture, China-based Lenovo will buy IBM's Personal Computing Division—which includes its popular ThinkPad notebooks, ThinkCentre desktops and ThinkVantage technologies—for about $1.75 billion. IBM will retain about an 18.9 percent interest in the new company, which will be the third largest PC vendor in the world, with have about $12 billion in annual revenue. It will be headquartered in Armonk, N.Y., and about 10,000 of the new entity's 19,000 employees will come from IBM. Stephen Ward, vice president and general manager for IBM's PSG, will become CEO of the new entity, which will be headquartered in Armonk. Current Lenovo CEO Yang Yuanqing will be president. More than half of the new company's employees will be from IBM.

IBM, also based in Armonk, will continue to sell, service, support and finance the products, and Lenovo will keep the brand names for at least five years.

The deal is expected to close in the second quarter of 2005.

Palmisano said the two companies' PC businesses were complementary—IBM focused on high-end and midrange enterprise users, while Lenovo targeted small businesses and consumers. At the same time, it will enable China to gain a foothold in the United States and grow IBM's footprint in China and Asia.

Is IBM's PC retreat good business? Read one view here.

"By combining our personal computing division with its own, highly complementary business, Lenovo will be much better positioned to capture the opportunities in the PC industry," he said. "Lenovo is committed to investing in, growing and winning in PCs. Lenovo will be a formidable competitor, and our alliance gives IBM an even stronger position in China, while strengthening our brand presence there."

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