IBM reorients the PC market

Rumours that IBM is to hand over PC manufacturing to a Chinese company have raised eyebrows -- and the stock of the most-whispered recipient, Lenovo. It is easy to see this in cataclysmic terms: the inventor of the modern PC handing over the market to the Far East, the death of the PC, even the end of Western dominance in high technology. Easy, but wrong.

For years, IBM hasn't made much more than the badge on the front of its PCs. Its computers, like those of everyone else, have come from parts of the world with the most reliable production techniques at the lowest production cost. Of late, that's been China. The PC market has been an exercise in brand and supply chain management, and from both points of view the shift to the Middle Kingdom is irresistible. With labour costs half that of the nearest credible competitor and an increasingly sophisticated skills base, there's no point in making stuff anywhere else -- and Chinese companies have correctly identified the adoption of existing Western brands as the quickest way to improve perception of their products worldwide.

Meanwhile, IBM -- never happy with high volume, low margin markets -- will be freed of the burdens of being the world's third biggest PC maker. Last week, Gartner said that of the top tier manufacturers, only Dell has the right structure to be consistently profitable: HP and IBM might as well cut their losses. The days of aggressive upgrade cycles coupled to expensive innovations have gone.

Assuming IBM does divest itself of its PC responsibilities -- as it did its hard disk interests in a successful joint venture with Hitachi -- then the decision will come to be seen as wise and timely. It's not just that PCs are becoming long-lived, low-priced commodities, it's that their days on earth may be numbered.

The world's burgeoning high-speed data infrastructures are not a natural match for the complexities and pitfalls of general purpose computers, especially those built at such a low cost that innovative research and high quality support are unaffordable. Thin client computing offers the most exciting possibilities for new business models, simply by making security and management possible -- and the money here is not in the clients. Servers and services won't just be the high-end business, they'll be all the business.

IBM won't be giving up. It'll be betting on a sea change in technology. Good call.