IBM Expected To Announce Sale Of PC BusinessIBM Expected To Announce Sale Of PC Business

IBM's pioneering PC business, founded in 1981, could become a historical footnote Tuesday as the company discloses its intention to sell the operation to Chinese PC manufacturer Lenovo Group Ltd.

As PCs have become more commoditized, IBM has increasingly seen its $11.5 billion PC business become more of a "loss leader" for its overall corporate accounts business and less a part of its long-term vision of providing innovative, differentiated products, says Gordon Haff, an analyst with Illuminata.

The move would be similar to IBM's earlier decision to exit the disk-drive business, another technology that has become highly commoditized with razor-thin margins. Details of the deal between IBM and Lenovo are expected to emerge after the stock market closes Tuesday, according to published reports.

Much of IBM's PC design and manufacturing is already performed by third-party manufacturers. But IBM would likely continue to provide "IBM-branded" desktop and laptop computers. Given the potential sales volumes the company could drive through its corporate accounts, IBM could continue to command a significant voice in design features of products manufactured by Lenovo and others, Haff says.

The sale of the PC business could give competitors such as Hewlett-Packard and Dell a potential edge in corporate accounts, although that would likely be minimal, he says. "The fact that HP has a big printer business gives them some advantages in a few deals as well," Haff says. "But the PC business is increasingly cookie-cutter, and I believe IBM now feels comfortable that if they get out of the business themselves, they can still offer a competitive product in a way that isn't going to hurt them."

Analyst Rob Enderle, principal of the Enderle Group, takes a more pessimistic view, saying that IBM's sale of its PC business to Lenovo has the potential "to be a fairly good-sized disaster." It would put at least 75% of its PC business, as well as related customer accounts, at risk, he says. The move may cause customers to question where IBM is headed next after the company has previously maintained that it would not exit the PC business, he says.

"Their customers are going to want to know what else they haven't been told," Enderle says. "IBM, to a large extent, trades on the fact that they are the most trusted vendor in the segment, but this is not something a trusted vendor does." Many business customers will be wary of dealing with a company in Lenovo that's partially owned by a foreign government, and doesn't have a long-established track record of quality in the business world, he says. "These customers tend to be large multinational organizations and governments, and they are going to hold IBM accountable for this, and that accountability is going to be very painful."