Toshiba gobbles IBM's POS biz for $850m
Big Blue sheds another hardware biz
As was rumored, IBM is indeed selling off its Retail Store Systems (RSS) division to competitor Toshiba. And it will be getting $850m (£530m) for it.
The RSS unit is a cross-divisional piece of IBM that sold around $715m worth of hardware in 2011 according to Big Blue's financial results - up nearly 12 per cent and growing twice as fast as its overall Systems and Technology Group hardware sales). It had total sales of $1.15bn last year, or so IBM says in this statement.
Like IBM's spin-offs of its PC, high-end printer, and disk drive manufacturing businesses to Lenovo, Ricoh, and Hitachi respectively in the past decade, IBM is not just selling off the RSS division but creating a holding company where it will have a stake initially but which it will eventually sell.
Under the agreement Toshiba TEC - the division of the Japanese conglomerate that sells cash registers, kiosks and other point of sale systems to stores, banks, hotels, casinos, gas stations and institutions that need to collect money or dispense it - will have an 80.1 per cent stake in this US-based holding company, leaving IBM with 19.9 per cent.
Steven Ladwig, general manager of the RSS unit, which at 22 per cent of the POS market is the world leader, will become the CEO of this holding company, which will have its headquarters in Raleigh, North Carolina, where IBM used to make and design PCs many years ago. (As well as where it designs System x servers and now the new Flex System converged systems.)
Toshiba will pay out a portion of the acquisition money (presumably proportional to the stake in the holding company, or around $681m, £427m) on the closing date for the deal, with the remaining portion (probably $169m, £105m) due on the third anniversary of the closing date. At that point, Toshiba TEC will absorb the holding company and own the whole shebang.
The RSS business has 1,000 employees worldwide, according to IBM, plus an additional and unquantified number of maintenance specialists who are in the field repairing all this gear. IBM said that it expects for these specialists to join the holding company controlled by Toshiba TEC.
As part of the three-year agreement Toshiba will become a premier business partner, which is IBM's top-tier partner level, with a specialty in "smarter commerce". Just like IBM helped Lenovo push PCs, IBM will help Toshiba push POS gear and related backend software to manage it.
IBM, it is clear, is mainly interested in creating the backend systems to run retail store systems and sell its expertise as services to retailers. Toshiba is keen on getting a global channel from which it can distribute retail gear and is essentially buying the dominant position in the market, jumping ahead of six other competitors – including top dog IBM and Hewlett-Packard, which is number two in POS systems.
Toshiba obviously has synergies between its PC business and POS gear that it can exploit, ones that IBM no longer has since selling off its PC business to Lenovo in 2004. As we pointed out yesterday, the wonder is that Lenovo didn't buy the RSS division when it bought IBM's PC group back then.
Toshiba TEC was hit hard by the Great Recession in its fiscal 2009 ended in March 2010, with sales of ¥364.6bn ($4.5bn, down 13.7 per cent), but net income rose (against an easy compare) to ¥4.14bn ($ 51m, up 57.3 per cent). In fiscal 2010 ended in March 2011, Toshiba TEC's sales were off six-tenths of a point to ¥362.3bn and net income was on the rise by 57.1 per cent to ¥6.5bn ($80m). At under 2 per cent of revenue, the margins that Toshiba TEC can get from its wares are barely better than what retailers can squeeze out. Net sales have been dropping over the past five years as competition has heated up, partially from IBM itself, which has seen double-digit growth in its RSS business.
IBM says that it expects for the RSS deal to close late in the second quarter or early in the third quarter, depending on when regulators give the thumbs up. ®
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