IBM Reveals PC Operation Was Unprofitable For Three Years

A Securities and Exchange Commission regulatory filing by IBM revealed that the firm continued to lose money in its PC operation in the past three years.



A Securities and Exchange regulatory filing by IBM revealed that the firm continued to lose money in its PC operation in the past three years, and that the losses continued even after the firm had outsourced most of its PC manufacturing in 2002.

In the filing Thursday, IBM said its personal computer business lost $258 million in 2003, $171 million in 2002 and $397 million in 2001. In the first six months of 2004, IBM lost $139 million in the unit, which had sales of $5.2 billion. IBM is selling most of the PC unit to China's Lenovo Group.

"The business has a history of recurring loses, negative working capital, and an accumulated deficit," IBM said in the filing. "The ability to settle obligations as they come due is dependent on IBM funding the operations on an ongoing basis." IBM noted that it sold most of its North American and European PC manufacturing operations to Sanmina-SCI in 2002, and followed up by selling Sanmina-SCI additional assets in 2003.

The sales to Sanmina-SCI came after years of losses in the IBM PC unit. IBM is Sanmina-SCI's largest customer, which, in addition to manufacturing PC gear, also makes server and storage equipment for IBM. Sanmina-SCI also does business with Lenovo, prompting Wall Street stock analysts to maintain they don't see the IBM-Lenovo deal as being negative for Sanmina-SCI.

IBM also has a PC manufacturing operation in Shenzhen, China, with Great Wall Technology.

From its earliest days in the late 1970s, IBM took an outsourcing approach to its PC. The company hired Intel to perfect the processor for the PC and Microsoft to develop its operating system. Although IBM funded the processor and OS developments, it didn't protect the PC intellectual property and soon found that Intel and Microsoft emerged as vigorous competitors and spawned an entire industry that came back to haunt IBM.

In a separate SEC filing by Sanmina-SCI this week, the contract manufacturing firm restated its earnings projections downward slightly, but gave no indication that the IBM-Lenovo deal had any impact on the change.

In its filing, IBM said revenue in its Personal Systems Group was up 3.1 percent.

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