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Asher
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Calgary, Alberta
Nov 1999
time: 22:18
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http://www.nytimes.com/2004/12/04/t...04computer.html
quote:
Weighing I.B.M.'s Possible Absence in the PC Market
By GARY RIVLIN and JOHN MARKOFF
Published: December 4, 2004
SAN FRANCISCO, Dec. 3 - Inside Hewlett-Packard, the world's second-largest personal computer maker, executives greeted the news on Friday that I.B.M., the world's No. 3 PC maker, might be retreating from the market, with good cheer.
Executives at Dell Computer, the largest personal computer maker, would not comment, but some industry analysts speculated that they too were smiling about I.B.M.'s decision.
According to people close to the negotiations, I.B.M. is in serious discussions to sell its PC business to Lenovo, the largest maker of PC's in China - a burgeoning market that Hewlett-Packard and Dell covet. I.B.M. is in talks with at least one other potential buyer. Industry experts note that a sale to Lenovo may create a powerful new rival with operations based in China.
Alan Promisel, an analyst at the research firm I.D.C., said a deal with Lenovo "would put up a significant roadblock to Dell and H.P.'s Asia Pacific expansion, at least potentially so." Mr. Promisel and others noted that a larger Lenovo, formerly known as Legend, could have the power to further squeeze down PC prices because of its track record as a producer of low-cost machines.
"If they're able to complete a deal," Mr. Promisel said, "Lenovo is obviously going to be more aggressive on the pricing front, which could lead to a compression on price points in the industry," potentially eating into the profits of every PC maker.
The price for I.B.M.'s personal computer unit is likely to be in the $1 billion to $2 billion range. A buyer would be purchasing the blueprints to the ThinkPad, a family of laptops generally regarded as the world's most reliable and secure laptops.
"The ThinkPad isn't just the best machine for the price," said Richard Dougherty, director of the Envisioneering Group, a market research firm in Seaford, L.I. "It is the machine for anyone concerned about security."
A buyer would presumably get the ThinkPad name and also I.B.M.'s customer list, but whether that would be worth much over time remains to be seen. According to people close to the negotiations, a buyer is also likely to get the use of I.B.M.'s brand name on PC's for a transitional period and I.B.M. may continue to sell the computers to corporate customers after the business unit is sold.
Mr. Dougherty said he is already hearing from I.B.M. customers fretting about a sale to a company that has specialized in low-price machines. "Customers are saying, 'Oh my God, we need to be assured we can get ThinkPad models that are just as secure and reliable, and not just a watered down ThinkPad brand from Lenovo,'" Mr. Dougherty said.
While Hewlett and Dell may benefit from that uncertainty, they may not necessarily benefit over the long term. I.B.M.'s retreat from the PC sector may be an irreversible transition from a world where corporate workplaces have personal computers on each desktop to one where corporate offices run on centralized computer systems with simple monitors on desks known as "thin clients" that have network connections.
This transformation would tend to harm Hewlett more than Dell, industry analysts said, because Hewlett, like I.B.M., is stronger in the corporate market than Dell, which sells the bulk of its computers to consumers. I.B.M.'s potential withdrawal from the desktop computer business indicates it has concluded that growth in corporate PC sales is largely over.
"If I.B.M. is getting out of the business because it can't make money, then investors will ask themselves, 'What does I.B.M. know that H.P. doesn't know?'" said Andrew Neff, an analyst with Bear Stearns.
And even for I.B.M., backing away from traditional personal computers now may not help, said Jonathan Schwartz, president of Sun Microsystems, one of I.B.M.'s top competitors.
"We've been in the post-PC era for four years now," Mr. Schwartz said, noting that last year a billion wireless handsets were sold compared with 100 million personal computers.
But Duane Zitzner, the executive vice president in charge of Hewlett's personal computer business, notes that the sector remains profitable, with Hewlett earning $210 million on PC's in the fiscal year that ended in October.
Moreover, Mr. Zitzner said that I.B.M.'s retreat provides a golden opportunity for his company. "Any time there's a change like this, it adds a level of uncertainty among customers buying equipment," he said, a condition his company intends on exploiting.
Dell accounted for 18 percent of PC sales - including laptops - worldwide in the third quarter of 2004, according to I.D.C., compared with Hewlett's 16.1 percent market share. I.B.M. was a distant third at 5.2 percent. I.B.M.'s sales are almost exclusively to corporate buyers, with most of those buyers being customers who also buy other equipment and services from I.B.M.
While Hewlett and Dell are expected to compete vigorously for I.B.M.'s corporate market share, there is evidence that this market will shrink over time.
The "thin client" concept has been a topic of heated debate in the computer industry for more than a decade. In the past, skeptics of that concept pointed to the PC's flexibility and convenience, as well as to the problems with mainframe computing.
Today, however, a number of factors ranging from the explosive growth of the Internet to increased computer and data security concerns are shifting the equation. Managing viruses and worms are easier on centralized systems, and software development is increasingly shifting to applications based on Internet-based standards.
"The days of the $3,000 desktop personal computer are over in the corporate world," said Terry Garnett, a venture capitalist who is a partner at Garnett & Helfrich Capital, based in Menlo Park, Calif. "This is a paradigm for the future and a signal of where things are going."
That trend has been reflected in a variety of recent analyst reports. On Thursday, for example, Rebecca Runkle, an analyst at Morgan Stanley, lowered her 2005 growth forecast for PC unit sales by 2 percent, to 9 percent. She noted that consumer, small business and government markets all slowed in the second half of this year.
In May, I.B.M. began offering a new thin client software application called Workplace - based on the Java programming language - that is intended for Web-based computing where data is managed and stored centrally.
I.B.M. is betting that such systems will be increasingly attractive to corporate customers - and will consequently diminish the once mighty personal computer business. |
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03-12-2004 23:12
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