IBM PC users face uncertain future

Now that IBM Corp. plans to sell its PC division to Beijing-based Lenovo Group Ltd., the big question is whether the companies can keep users from defecting to other vendors — which would put IBM’s once standard-setting PCs even further behind systems from Dell Inc. and Hewlett-Packard Co. in market share.

After the deal with Lenovo was announced this week, some of the more than two-dozen IBM users Computerworld interviewed or contacted via e-mail said they don’t expect the planned sell-off to have an immediate effect on their companies. But many others voiced concerns about whether the quality of IBM’s hardware and the technical support they receive will suffer once Lenovo takes over during next year’s second quarter.

For example, longtime IBM user Sidney Soberman, director of technology systems at The H.W. Wilson Co. in New York, said the publishing company’s ThinkPad notebook PCs are durable and never break down. But with Lenovo buying the technology, “I would tend to think the quality of the notebooks will decline,” said Soberman.

Some IBM users said they plan to look at other vendors as a result of the deal with Lenovo.

“We will now more seriously look at other options, such as Dell, as we replace our PCs,” said the CIO at a U.S.-based nonprofit organization. The CIO, who asked not to be identified, added that almost all of the organization’s 600 PCs are IBM machines.

The director of application development at a national retail chain said he will begin to evaluate laptops from Dell while watching for any signs of change on IBM’s products. The retailer uses laptops and some desktop PCs from IBM, said the director, who also asked not to be named.

Some members of Share Inc., an IBM user group based in Chicago, have expressed concerns about the sale’s possible effect on hardware quality and technical support, said Robert Rosen, the group’s president. “These are the things that really touch the customer,” said Rosen, who is also the CIO at a unit of the National Institutes of Health in Bethesda, Md.

MasterCard International Inc. uses IBM servers now and would have liked to see if it could reduce costs by migrating to IBM’s PCs as well, said Ronald Steinbruegge, vice president of global internal technologies at MasterCard’s IT facilities in O’Fallon, Mo. However, the planned sale to Lenovo “will present a challenge” to that plan, he said.

But other IT managers said they don’t see the IBM-Lenovo agreement as a big deal, from a customer perspective.

Jim Prevo, CIO at Green Mountain Coffee Roasters Inc. in Waterbury, Vt., said he doesn’t expect the change in ownership to have any effect on his company. All the laptop PCs that Green Mountain uses are ThinkPads, Prevo said.

Mobile Travel Guide CIO Paul Mercurio likened PCs to telephones and said he doesn’t see the planned sale as being consequential to IBM’s long-term goals as a vendor.

PCs are “not a strategic product in the way their servers are,” said Mercurio, whose company is an autonomous division of Exxon Mobile Corp. in Irving, Texas. Mercurio added that he doesn’t think the deal with Lenovo is a precursor to the sale of any of IBM’s server units.

Deepak Advani, chief marketing officer at IBM’s PC division, said that although Lenovo will take over development and manufacturing, IBM will continue to support the systems under an agreement that makes it the preferred service and customer financing provider to Lenovo. “A lot of our large customers want IBM doing the service and support, and that’s what they will get as part of this deal,” Advani said.

Stephen Ward Jr., senior vice president and general manager of IBM’s Personal Systems Group, will become Lenovo’s CEO, and the company will set up a new headquarters office outside of New York. IBM will get an ownership stake of 18.9 per cent in Lenovo, which will pay at least US$650 million in cash and up to US$600 million worth of stock for the PC unit and assume about US$500 million worth of financial liabilities from IBM.

Lenovo will manufacture the PCs to IBM’s quality standards for at least five years, according to Advani. The companies said the deal will give Lenovo annual PC revenue of about US$12 billion — a fourfold increase over its current PC business.

IBM has fallen well behind the PC pace set by Dell and HP (see chart). But one risk is that the PC sell-off could affect IBM’s server sales, said Tony Iams, an analyst at D.H. Brown Associates Inc. in Port Chester, N.Y. The sale of PCs often leads to server purchases and vice versa, he said.

But Advani said IBM isn’t worried about that because its sales force will be able to sell the Lenovo-made PCs.

Another potential problem is reduced sales to federal agencies in the U.S., given the Chinese government’s large ownership stake in Lenovo. Ray Bjorklund, an analyst at Federal Sources Inc. in McLean, Va., said the Department of Defense and other agencies involved in national security may decide not to buy Lenovo’s PCs. But, he added, other agencies “will probably be happy to buy them” if Lenovo’s pricing “is extremely competitive and the machines work well.”

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