IBM's Expected Plans For Its PC Division Could Actually Mean Market Expansion
Lenovo, a 20-year-old manufacturer whose Legend PC is a major brand throughout Asia, is a low-cost supplier. The addition of a worldwide brand to its lineup could produce a top-tier, competitively priced alternative to Dell and Hewlett-Packard. And I believe choice is always good.
Lenovo also would gain access to the IBM worldwide channel via the rumored deal, given that it's unlikely IBM's current distribution and solution provider base will walk away from the IBM PC and notebook brand—even if it is owned by someone else.
If this alliance is, in fact, announced tomorrow, and ultimately transacts, it will be the first time in years that we have seen an expansion of the PC market. For too long now we have seen contraction in the supply base of desktops and notebooks. The reason I consider this as a potential expansion is that IBM has not looked at its PC business as strategic for some time now. As a result, it has not invested in the business in the way that HP—which does view PCs as strategic—does.
HP Chairman and CEO Carly Fiorina has stated many times that she believes every business needs to stand on its own. She is correct. Holding onto a business because you believe it is strategic but are unable to turn a profit with it is a good way to go out of business.
The reason IBM plans to jettison its PC operations lies in its strategy to concentrate on higher-margin business. IBM Chairman and CEO Sam Palmisano believes no matter how many resources the company throws at the low end of the systems market, and no matter how efficient it gets, IBM will still end up with margins well below that of all its other businesses.
Of course, I'm basing all this analysis on what I know on Friday, Dec. 3.
I could be wrong if things do not go the way I think they will. But what IBM would be trying to accomplish with this move is to get out of the low-margin PC business, while creating a stronger competitor in that space for its main rival, HP. That, in turn, would allow Big Blue to focus on businesses that produce a better return.
Let's be clear: If this deal happens, HP isn't going to roll over and cry uncle. It has some very good managers focused on making the PC business work. HP's performance has improved dramatically over the past year, and it is much more competitive than IBM in this space. Fiorina believes HP can be successful in both low-margin and high-margin businesses.
IBM will never give PCs the amount of focus that HP or Dell do, and that's why this deal would make sense. Placing the IBM PC-branded products in the hands of a company that is heavily focused on PCs would be a good move.
Steve Ward, who heads IBM PCD, would be the likely candidate to run the organization, which would probably be set up as a subsidiary of Lenovo. Ward is a solid operations executive, and that's exactly what will be needed.
If we end up with a new low-cost manufacturing company that is solely focused on PCs, has the benefit of the IBM brand and is able to tap the IBM channel, we will end up with an expanding market.
I look at it this way. HP is focusing more on the channel and is posting better results. The expected IBM plan should also result in more choices for the channel and, ultimately, the end user. The economy is improving. This is turning into a wonderful holiday season.
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