IBM Sells Its Business Machines: Takeaway Lessons

Last week, IBM announced that it was selling its low-end server business to Chinese hardware manufacturer Lenovo. The deal has been widely summarized in the trade press as the logical result of the commoditization of x86-based servers, in much the same way PCs were commoditized a decade ago. And because IBM tends not to compete in low-profit product lines, this transaction was inevitable and makes simple, straightforward sense. If only things were that simple!

While it's true that IBM has been steadfastly moving out of commoditized hardware sales, the timing of those moves has been significant. When it sold off its disk-drive business, disks were still good business, but the company saw a future of declining margins and shed its HDD unit. Then came the sale of its PC division to Lenovo in 2005. Eight years ago, PCs were not yet the low-profit, commodity items they are today. (Only three years before, HP purchased Compaq in large part because of its PC market share.)

The pattern here is that IBM gets out of profitable businesses before they start a steep descent. Industry analyst IDC projected in 2013 that IBM grossed $3.3 billion in the low-end server market and affirmed that the company was the largest vendor in the space, slightly ahead of HP and significantly ahead of Dell. For IBM to pull out of a market sector in which it held the top spot, something more than a simple, logical event must have occurred. The company must have seen something others didn't see or didn't recognize. And, in fact, it did.

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