There remain many questions around IBM’s sale of its personal computing division to China-based Lenovo Group Ltd. However, one thing agreed upon by most observers is that IBM’s competitors in the low-margin sector for personal desktop and laptop computers could stand to benefit in the market reshuffling.
Combined, IBM and Lenovo will stand at third place among PC makers with a projected 7.7 percent of the market and combined sales of $12 billion last year, behind Dell Inc. and Hewlett-Packard Co., which respectively command 16.7 percent and 15 percent of the market.
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Even for the industry leaders, though, the business remains one of low margins and low return on investment. In IBM’s case, the first nine months of 2004 saw a profit of less than $100 million measured against $9.4 billion in revenue.
Similarly, HP’s Personal Systems Group, which represents the company’s total sales of laptops, desktops, personal workstations and handhelds, saw a $210 million profit on $24 billion of revenue.
Despite the low ROI, which was seen as a factor in IBM’s decision, HP remains committed to the PC market, said Deb Nelson, the company’s vice president of marketing worldwide for the Personal Systems Group.
“It’s a two-horse race” between HP and Dell, Nelson said. The IBM/Lenovo deal “is a change but not a significant one on the overall market,” she added.
“We’re not surprised by this move,” Nelson said. She agreed that the PC business is one in which low profits are the norm, but she stressed that in HP’s case, the PC is just the entry for sales of HP products.
Although HP is also a competitor in the server and support market, as IBM is, Nelson said that fielding PCs “brings a lot of other benefits” aside from unit desktop or laptop sales.
Nelson pointed to a “portfolio” of other items HP markets, such as printers, cameras, MP3 players and servers. These, she said, have higher margins but are sold using HP’s PC line as an anchor. In fact, Nelson said, digital entertainment was the focus of the company’s August product launches as well as its print and advertising campaigns.
Whether IBM’s deal with Lenovo will affect HP’s market share in the United States (Lenovo has a long lead over the field of computer manufacturers in China, so much so that Dell decided to abandon the PC field there earlier this year), Nelson said it could induce “some uncertainty in IBM customers,” which would be an “opportunity” for HP.
Is IBM’s PC retreat good business? Read one view here.
Lionel Menchaca, a spokesperson for Dell, declined to comment directly on the IBM/Lenovo deal.
He noted that Dell does not break out profit numbers for desktop and laptop sales, but did note that they were both “profitable.” He added that 50 percent of the company’s $47 billion of revenue for the past four quarters was due to desktops and 29 percent was attributed to laptops, with the remaining 21 percent coming from servers and storage. Dell has historically been able to retain larger profit margins on its products due in part to its direct-sales model over the Internet.
Menchaca added that Dell is not focused on acquisitions, preferring instead to grow the company “organically.” However, Dell has been no stranger to purchasing companies to get a foothold in a market. In 1999, the company made its first acquisition, of storage vendor ConvergeNet, for $340 million. And in 2002, Dell bought services company Plural Inc.
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