by Sarah Cohen
IBM reacts quickly to market changes with small steps that gradually transformation the company... [+]
I’ve asked
It’s too bad nobody from IBM wants to chat about when and how it decides to slough off businesses. The company probably has something to teach other technology vendors, like Dell, HP and Microsoft, who find themselves shifting focus. Its deal-makers were either luckier or smarter than peers when the company morphed from THE computer vendor in the 1980s, sometimes given credit for inventing PCs as we know them, into a services and software company.
Even today, an average bystander might think IBM sells PCs. It hasn’t since 2004. It sold them to Lenovo in one of the final steps of a shift that began in the early 1990s when the company realized that “IBM compatible” PCs from other vendors, known as “clones,” were eroding its margins. Lenovo just displaced HP as the largest PC maker in the world in a shrinking market, according to Gartner and IDC. Shipments fell 11% in 2Q13 compared to a year ago, marking the fifth consecutive quarter of declines, Gartner stated earlier this week.
I wonder if IBM’s most differentiating deal-making skill is not so much acquisition-making, since most of its peers purchase and integrate companies well, and some, like Cisco, “to great effect,” as one banker put it – but in having the wisdom to know when to divest.
HP is “IBM gone bad,” without Big Blue’s portfolio management discipline, unable to slow down when in the midst of a bad deal or speed up when it’s time to chop assets, continued the banker. Portfolio management to IBM is a larger issue than deal-making, encompassing how products are shifted into mixes and bundles, he added.
Often, when IBM divests, it sells assets in a series of small, mundane deals over a period of time: manufacturing facilities (the company is keeping a product but selling a plant), product lines of larger businesses, small operations abroad. The most recent rumor was that it would sell its low-end server business to Lenovo. IBM often divests hardware because of low margins. The company’s last divestiture, according to Mergermarket’s database, was its point-of-sale retail terminals to
One of IBM’s most notable divestitures was the sale of its printer business in 1990 to Clayton Dubilier & Rice to form what would become Lexmark.
23 years later, HP is still struggling with the notion of selling printers, as well as PCs. As ugly as HP’s M&A picture has been in the past decade, with a list of poorly conceived and executed acquisitions and goodwill charges, its divestment profile, or lack thereof, is at least as bad. Analysts first began calling for a split of HP in 2003, arguing that it would be worth more to shareholders as a consumer business, with PCs and printers, and an enterprise business. By 2004, HP CEO at the time Carly Fiorina admitted that the board considered breaking up the company on three separate occasions, each time dismissing the idea. Fiorina resigned in 2005, forced out as it became clear that the $25 billion Compaq deal, for which she bitterly fought would not live up to expectations.
In 2010, Leo Apotheker, who served as HP’s chief for about a year and faced a rapidly sinking stock price, embarked on a plan to emphasize software and divest PCs, essentially copying IBM. This idea did not sit well with HP’s board, since PCs accounted for a third of the company’s revenue, and Apotheker soon resigned.
Last year, rumors of divestitures resurfaced, only to be dismissed publicly by HP’s current CEO Meg Whitman and company spokespeople. Still, pundits wonder what will become of PCs, printers, and these famously bad acquisitions: Autonomy, Palm and Electronic Data Systems (not to mention Compaq).
IBM, comparatively, seems full of style, grace and know-how. What it does that others may not is face reality and react quickly and in small doses, so transformation is gradual, steady and on-going.
