IBM Tries To Allay Concerns Regarding Sale Of PC Business - InformationWeek

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IBM Tries To Allay Concerns Regarding Sale Of PC Business

During the last month, IBM has met with thousands of customers to talk about the expected transfer of its PC business to Lenovo. Few have expressed deep concerns, according to IBM.

IBM has met with thousands of PC customers during the last month in an attempt to allay concerns over the expected transfer of the business to Lenovo Group Ltd. within the next five months.

Few of those customers have expressed deep concerns over the future direction of the IBM PC operation, says Bob Galush, VP of product marketing for IBM's personal-computing division. "We believe a majority of our customers will be comfortable with the new ownership relationship," he says.

IBM revealed in December its intentions to sell its PC business to Lenovo for $1.75 billion. Lenovo, the largest PC manufacturer in China, plans to re-establish its world headquarters in Armonk, N.Y., combining the 9,500 IBM personal-computing division employees with its own 10,000 workers. The transaction is expected to be completed in the second quarter.

Reactions to the sale from IBM PC customers can be divided into three groups, Galush says. The first group has readily seen the advantages to be gained in a broader product line and an increased focus on the PC business. The second group has only voiced concern for continuity of the IBM product line in the future. The third, "very small subset," is not convinced the move will be advantageous, and IBM has been engaging those in one-on-one meetings to try to explain its future plans, Galush says.

IBM says it believes the sale to Lenovo should be viewed more as a strategic alliance--with IBM maintaining a 19% ownership in the new company.

The new company also should be more financially viable. During the past four years, the IBM PC operation has lost about $1 billion, according to Securities and Exchange Commission regulatory filings by IBM. "The stress on PC vendors from operating on such low margins led to IBM's exit," says Charles Smulders, an analyst with Gartner. "Expect further consolidation going forward."

Despite operating at a loss, IBM was the third-largest vendor worldwide for PCs in 2004, with 5.5% market share, according to Gartner. That share was up slightly from 2003, and overall PC shipments for IBM increased 16% year to year, the research firm says. The combined Lenovo/IBM is expected to have market share of about 8%, helping to cement its position as the third-largest PC supplier worldwide.

With the PC business operating within the structure of the overall IBM business, "it has operated with a number of inefficiencies" that will be eliminated now that the Lenovo operation will be able to concentrate solely on PC investments and innovations, IBM's Galush says. The new company will be able to take advantage of the synergy between the primarily enterprise and small- and medium-business-based IBM product line and the more consumer-oriented Lenovo products, he says.

In meeting with IBM customers, there have been assurances that the customers will be able to continue to engage with the same sales and support teams they've used previously, Galush says, and that IBM product lines and plans will remain in place. "We will be delivering on the same level of innovation and quality going forward with the same teams and products," he says. "The road maps are unchanged. The message we are sending to customers is that very little, if anything, has changed in their relationship with IBM." Lenovo/IBM will continue to regularly deliver new products that will continue to use the IBM brands, Galush says.

On Wednesday, IBM introduced its fastest-performing "thin and light" notebook computer to date, the ThinkPad T43. The computer is equipped with Intel's new Sonoma chipset, which includes the Pentium M processor with 533 MHz front-side bus. In addition, the T43 will be offered with a fingerprint reader for increased security.

IBM will continue to expand its product line over the coming months, Galush says. That will include looking at how the two existing product lines from IBM and Lenovo will best be merged, including a look at areas like thin-client PCs and blade PCs. "We are looking at those lines to determine how we will expand them more broadly around the world," he says. "I think you're going to see over the next year a number of actions related to broadening the portfolio."

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