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.