IBM Sells PC Division to Lenovo

The China Syndrome
By Robert X. Cringely

The best analysis bar none, of the IBM / Lenovo deal!

This week, as anyone knows who reads the business section of their local newspaper, IBM sold its personal computer division to Lenovo, a company presently based in mainland China. How far we have come! When IBM announced what was then its Entry Systems Division and introduced to the world the underpowered, overpriced, but fantastically successful IBM Personal Computer, China was not yet even a member of the United Nations. Who would have guessed that times would change so much and so quickly? And who also would have guessed that all the analysis we've been reading about this transaction could be so shallow and misleading? There is far more to this deal than people are being told.

What is absolutely key to this deal is that the buyer is Lenovo, the largest Chinese PC manufacturer. Yes, the division was unprofitable and IBM would have eventually had to do something about it, but Sam Palmisano wanted a Chinese buyer and was willing to accept far less cash than he might have received elsewhere just to get the buyer he wanted.

IBM got rid of a headache and in doing so, gained unique access to what will shortly be the world's largest IT market. This deal is all about China, not the U.S.

While IBM will still have design input on future PC products and those products will continue to carry the IBM brand for five years, the company will shortly have severed any major financial dependence on the future of those product lines. In short, this is the end of the line for IBM's marriage with Intel. Sure, they'll continue to sell boxes containing Intel (and perhaps AMD) processors, but the historic link is severed, with the result that IBM will be able to compete with impunity using its PowerPC and Power5 processors.

What Palmisano has done is clear the decks so he can compete unfettered in a completely different segment of the market -- servers -- where IBM DOES make money and where they will now proceed to crush the competition.

IBM's PowerPC investments are beginning to show impressive results. If you look at their November 9th press release on the p5-575 "super computer," IBM shows it can now comfortably combine and cluster scores of processors into a relatively small blade center chassis.