IBM gave HP room to run in the PC race

December 2004

IBM gave HP room to run in the PC race

In a move that surprised many industry analysts, IBM sold off its PC business to Chinese computer firm Lenovo Group. The deal delivers the popular ThinkPad laptop computers and full use of IBM’s PC technology patents to a company that’s already ramped up for large-scale computer manufacturing. Analysts were commenting that IBM’s departure from the computing sector which it helped create puts HP in a unique position: The last one-stop shop for business computing products and services.

Lenovo operated as Legend until recently, and the company has enough cash on hand to float a $1.75 billion deal that includes $500 million of IBM PC liabilities. IBM will take an 18.9 percent stake in Lenovo while it gives the Chinese firm five years of use of the IBM brand. Before the deal, Lenovo was among the top 10 PC makers worldwide. The combination of IBM’s PC business with Lenovo’s creates the third-largest PC business, behind Dell’s and HP’s. But the addition of the IBM business will quadruple Lenovo’s current revenues.

HP — which has retreated from innovative sectors of its own, such as disk drive manufacturing and the HP 3000 market — won’t have to deal with Lenovo until 2005’s second quarter, when the IBM deal will be finalized. But HP told analysts within a few days of IBM’s retreat that HP has considered a similar spinoff three times in recent years. The vendor has now decided it won’t break off its computer operations from its much more profitable printer business. Such a spinoff was rumored to be at the heart of the upcoming enterprise systems reorganization at HP; the vendor has told analysts it will take a 4 cents per share charge to finance the restructuring.

As for HP’s PC products, the company continues to pursue the consumer sale, the same sector that makes up the majority of Lenovo’s current sales. The latest example is the Pavilion zd8000 notebook, a 9.5-pound model that can serve as a TV, stereo, video recorder and DVD player using the Windows Media Center.