*****OT(Sorta)*****
In Wake Of PC's Decline
Will IBM Leave The Field?
Date: 3/31/99
Author: Doug Tsuruoka
Some analysts say IBM Corp. will exit the PC
market, following the company's disclosure last
week that it lost almost $1 billion in the personal
computer business last year.
IBM stated the loss in its annual report, blaming
tough price competition. And in his letter to
shareholders, IBM Chief Executive Louis
Gerstner said that ''the PC era is over.'' Instead,
he -like others - sees networks, servers and
appliances blossoming.
The company moved quickly to end any talk of it
leaving a field it helped pioneer two decades ago.
''Lou is saying the PC era is over, not that IBM
or other companies won't sell PCs,'' an IBM
spokesman said.
The company, though, is getting more of its sales
from services. And some analysts, including
Matthew Nordan at Forrester Research Inc. in
Cambridge, Mass., expect it to leave the
cutthroat, low-profit-margin PC business in 2001
or 2002.
IBM's retreat will be hastened by declining PC
prices; a switch by more users to non-PC,
Net-connected devices; and the end of a
temporary sales spike caused by the Year 2000
glitch, Nordan says.
''PCs are going to be a worse business to be in,''
he said.
Others say that the time to make such a decision
is now. ''If IBM gets out of PCs, I wouldn't be
surprised to see it happen by 2002,'' said Jeffrey
Maxick, an analyst with Madison Securities Inc.
in Chicago.
Forrester predicts PC supply and demand will be
out of kilter through the end of 1999, as
companies buy more PCs to replace old gear
that might cause Y2K trouble. Some older PCs
need to be fixed to read correctly the year 2000.
Forrester says prices then will fall faster because
of leftover inventory from the Y2K problem. The
firm says PC revenue will decline to $47 billion in
2000 from a record $55 billion this year.
Another reason for the falling sales is that
Web-linked devices are expected to emerge as
substitutes for PCs. Forrester looks for
stagnating PC revenue at least through 2002.
IBM's retreat from PCs may only go halfway. It
could still sell PCs, but farm out most of the work
to so-called original equipment manufacturers.
This way, IBM could maintain its top-line PC
research and development. ''This lets them keep
the IBM name on everything and get rid of an
unprofitable PC business line,'' Nordan said.
Recent deals in which IBM will sell parts to rivals
like Dell Computer Corp. and EMC Corp. will
make it easier for IBM to pass PC manufacturing
to such firms, Nordan says. These companies will
be more familiar with working with IBM.
Maxick agrees third-party manufacturing of PCs
is a possibility for IBM. But he says IBM might
stay in PCs to keep supplying customers with full
solutions to their computing needs.
IBM has said for some time that it's putting more
focus in areas such as software and services, as
opposed to PCs, where profit margins are higher.
Although its shipments are up, its U.S. PC
market share fell to 9.1% in the fourth quarter
from 9.9% in fourth-quarter 1997, says
researcher International Data Corp.
Gerstner says in his shareholder letter that
computer networks are replacing PCs as the
biggest factor driving sales and software
development. He says IBM's future lies in getting
more involved in networks. This includes sales of
mainframes or other servers that dole out data on
networks, as well as chips and other products.
Gerstner says IBM also will target electronic
commerce and new products like Web-enabled
TVs and screen phones.
IBM also continues to lead in network
computers. These are stripped down machines
hooked into networks that get most of their
power and applications from servers. IBM has
about 43% of this market, says Eileen O'Brien,
an analyst with International Data Corp. in
Framingham, Mass.
Still, O'Brien says NCs only account for about
1% of IBM's revenue. PCs accounted for about
16% of its $81.7 billion in revenue.
Some analysts say PCs are just changing into
new forms and will be known by other names.
''The PC isn't dead,'' said Bob Fox, an analyst
with Mercer Management Consulting Inc. in
Boston. ''PCs will continue to get smaller, faster
and cheaper. This means you can put them in
things like hand-held computing devices.''
John Jones Jr., an analyst with Salomon Smith
Barney in San Francisco, scoffs at the idea that
IBM might leave PCs. ''No way,'' he said.
''That's simplistic thinking on the part of Wall
Street. PCs represent 25% of the computer
industry. Does it make sense for an industry
leader to leave?'' |
