Lou Gerstner's IBM loses it on ThinkPads, PCs

Big Blue has screwed up big time in the PC market and managed to lose $1 billion in that business in 1998. The company saw $1 billion of greenbacks slip out of its hands and into the pockets of competitors including Compaq, Dell and HP. The disastrous loss in its PC business means that it's now more likely than ever that IBM will exit the PC business. As IBM foisted its PC XT on the world in the first place, the $1 billion loss is doubly humiliating. The news coincides with the release of IBM's Annual Report. In that, Mr Gerstner partly blamed price wars and slumps in the chip market. Now, his message is one of discontinuity, rather than continuity. He said: "In just about all businesses – including information technology, but also banking and retailing and health care, and in the noncommercial world, too – we will see new leaders emerge, and we will see some old, longtime leaders sink. Competitors will spring up out of nowhere – competitors called "something.com." A quick search showed that WWW.SOMETHING.COM is still free. Someone go and register it quick. Overall, revenues grew from $78,508,000,000 to $81,667,000,000, while net profits were up from $6,093,000,000 to $6,328,000,000. Gerstner re-iterated his earlier statement that the "PC era is over". Unfortunately, the PC era seems to have been over for IBM soon after it began in 1981. What a catalogue of disasters. Bad news for IBM's personal systems division is bad news for IBM resellers , disties and IBM channel assemblers. And very good news for Dell. Dell can soak up IBM components and make much more use of IBM's profitable services division than can IBM's channel dependent PC operations. IBM PC losses come after the company stripped out more than $1 billion in costs. On the upside, capital-spending needs are small, according Milunovich.The PC division's headline $992 million loss can be reduced with a little jiggery pokery by reallocating expenses within IBM's hardware business. And The Register supposes that IBM PCs are useful route to market for the company's components operations. But the company's PC business has failed to earn the cost of capital over the last three years. And group profit for 1999 would be 50 cents to 75 cents more if IBM junked the PC business. "The loss in PCs was a key reason hardware only contributed 29 percent of [IBM] pretax profit," Milunovich said in his report. He was able to run the slide rule over IBM's PC operations because US regulators had forced the company for the first time to supply detailed profit and loss statements for each division. ® See also: PC industry optimism at 'five year high'