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Editorial: Playing to your strengths

Editorial: Playing to your strengths

While IBM's decision to sell its PC business to Lenovo will have come as a surprise to many, it should probably be seen as an example of practise what you preach. If business divisions were people, the deal would be like putting grandma in a retirement home - Big Blue is, after all, the elder statesman of the PC industry - but in all walks of life it makes perfect sense to concentrate on your strengths and cut loose anything that is failing to make a return.

It is no secret that manufacturing PCs is a difficult way to make a profit these days as the market continues to commoditise. IBM, for its part, has been a fading light in the PC market for some time now (with the exception of its ThinkPad notebooks) as it concentrates increasingly on the higher margin games of services, high-end servers and software. The deal with Lenovo will free up more resources for IBM to maximise its potential in those areas, while its 18.9 per cent share in the Chinese manufacturer will mean it still has one finger in the PC pie.

But what will Big Blue's deal with Lenovo mean for the market as a whole? Well, first up, it is exciting that one of the world's big three computer manufacturers will now be based in China - the world's largest potential market for the finished products.

But managing the transition of the brand will be fascinating to watch and, while there are some similarities between HP's integration of Compaq into its model, there are also some marked differences - Lenovo is a powerhouse brand in its native China, and indeed across Asia, but certainly doesn't have the global acceptance of IBM or Compaq. While the announcement gives Lenovo even more muscle in its domestic market (IBM is the second largest PC brand in China) the deal is much more attractive to Lenovo as a foothold into Europe and the US - markets it has to crack it is to become a truly global brand. But, as some analysts have already pointed out, Lenovo will have to travel some hard yards if it is to convince corporate America that a ThinkPad built three years from now will have the same build quality as one rolling off the production lines right now - even though the vast majority of notebooks are already produced by a handful of OEMs in China and Taiwan.

For other manufacturers, the deal represents an opportunity to spread a little fear among current IBM customers and try to pick up market share as a result. As you would expect, Dell was first out of the traps. Even before the IBM/Dell announcement was made official, Dell chairman, Michael Dell, said his company had chosen not to get involved in acquisitions because it liked to pick off its competitors "one customer at a time".

"When was the last time you saw a successful merger or acquisition in the computer industry?" he said. "It hasn't happened, at least not in a long, long time."

With market analysts at IDC and Gartner predicting further consolidation in the PC market during the next few years, you have to wonder who is next.


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