WinInfo Daily UPDATE, January 3, 2004

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In the News

- IBM's PC Division: No Profit in More Than 3 Years
- Here Comes CES 2005

==== In the News ====

by Paul Thurrott, [email protected]

IBM's PC Division: No Profit in More Than 3 Years

In a regulatory filing with the US Security and Exchange Commission (SEC), IBM revealed that its PC business, which the company recently sold to Chinese computer giant Lenovo Group for $1.25 billion, hasn't been profitable for at least 3 and a half years. The revelation, which IBM wouldn't have made were it not legally required to complete the sale, was unusually blunt about the economics of the PC business.
"The \[PC\] 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." The business lost $258 million in 2003, $171 million in 2002, and $397 million in 2001. In the first half of 2004, IBM's PC business lost $139 million on sales of $5.2 billion.
In recent years, IBM has divested itself of some of the less profitable parts of the PC-making process, selling off almost all its manufacturing operations in 2002 and 2003 (the company still maintains a manufacturing center in China). Since then, IBM outsourced the manufacturing of most of its PCs, although its North Carolina-based offices were still responsible for designing the machines, which include the popular ThinkPad line of notebooks. This situation is in keeping with the original goals of IBM's first PC: The company outsourced the microprocessor to Intel and the OS to Microsoft and other companies; those decisions led to the PC industry we know today. Thanks to cutthroat competition, the only large PC maker that turns a profit on its PC business today is Dell. Although IBM's sale to Lenovo will create a larger number-three PC maker (behind Dell and HP), whether that new company will be able to return to profitability is still unclear.

Here Comes CES 2005

The biggest and most important US-based technology trade show comes rolling into Las Vegas, Nevada, on Wednesday, attracting hundreds of thousands of attendees from the computer and consumer electronics markets. As with the past few shows, the Consumer Electronics Show (CES) 2005 promises to usher in the technologies we'll be using throughout the year, especially home- and consumer-based technologies such as digital media, High-Definition Television (HDTV) and home theater, home networking, smart phones, video games, and wireless.
CES 2005 starts with a preconference keynote address by Microsoft Chairman and Chief Software Architect Bill Gates (and if this year's speech is as boring as usual, I'll never attend one of these things again). The address will concentrate on the home-oriented technologies that Microsoft will later display at the show, including Digital Rights Management (DRM), Media Centers and entertainment PCs, new Xbox information, portable video, and Smart Personal Object Technology (SPOT) smart watches. Video game enthusiasts are hoping that Gates will publicly demonstrate the next Xbox system during his talk.
As for the rest of CES, promoters say that this year's show will highlight the major technology trends of 2005, including media servers, portable entertainment, smart kitchen accessories, video gaming and interactive entertainment, and telematics, which lets cars and other vehicles connect wirelessly to online services. "It is clear that content is beginning to drive the creation of new devices and that the continued adoption of broadband will allow product innovation to soar," Gary Shapiro, president and CEO of the Consumer Electronics Association (CEA), said. "These technologies are slated to bring value to consumers' lives and have the greatest impact on our industry in the months to come."
I'm traveling to Las Vegas this week with Contributing News Editor Keith Furman. We'll report daily from the show starting late Wednesday.

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