IBM to Stop Selling Its PCs in Most Retail Stores, Rely on Net
Continuing a retreat from its money-losing personal computer business, IBM said it will stop selling its consumer desktop PCs through retail stores and instead encourage customers to buy the Aptiva models over the Internet.
The world’s biggest computer company lost $1 billion on its PCs last year and more than $200 million in the first half of this year, caught amid offers from discount computer makers, rebates tied to Internet access and direct sales by rivals to consumers.
“Their heart just wasn’t in it,” said J.P Morgan analyst Daniel Kunstler.
IBM played a critical role in the popularization of the personal computer in the early 1980s and was the first to back Microsoft Corp., but it was quickly outflanked by lower-cost competitors. In recent years, IBM has struggled to compete in the retail business against more focused rivals such as Compaq and Apple Computer.
IBM’s move, effective Jan. 1, is part of a consolidation in its computer hardware division that includes cuts of as many as 1,000 employees, or 10% of the unit. Analysts said IBM’s corporate culture, like its profit, is focused on higher-end business computers and on services. IBM has had far greater success in selling personal computers to businesses and does not appear to be retreating from that market.
IBM ranked seventh in market share for home desktop and notebook computers in the first six months of the year, with 5.4% of U.S. shipments, according to research firm Dataquest Inc. of San Jose.
“When you don’t have much, you don’t have much to lose,” Kunstler said. Analysts said they didn’t expect other, more profitable manufacturers to follow IBM’s lead.
IBM’s market share is now likely to fall further, although company spokeswoman Trink Guarino said the Armonk, N.Y.-based company will spend $20 million to advertise the IBM Web site.
“We didn’t feel the product was differentiated on a retail shelf,” Guarino said. “It’s very hard to say why to buy Aptivas over anyone else.”
IBM said it will continue with a pilot program at selected OfficeMax stores where its products are offered by a dedicated sales force.
The company may have been influenced by rising costs for components, including memory chips, and the popularity of Apple’s iMac machines as Christmas approaches.
“They are going to sell a boatload of iMacs,” Kunstler said. “Is the Aptiva brand all that highly prized? It’s OK.”
IBM shares inched up 13 cents to close at $107.13 on the NYSE after falling as low as $105.44. Other computer makers fell sharply a day after Dell Computer warned that rising memory chip prices will hurt its quarterly earnings.
Analysts said the savings from moving PC sales to the Web makes IBM’s move a good one, particularly as the company fends off bargain-basement deals such as those offered by EMachines, which sells a monitor-free model for $399 after rebate.
“When people want to do things as cheaply as possible, it behooves corporations to try to figure out whether they want to be in that game or not,” said Stephen Dube, an analyst at Wasserstein Perella Securities.
For other big companies, retail still appeals. Compaq has vast distribution that way, and Hewlett-Packard benefits through association with the printers it sells in stores.
Those companies reaffirmed their commitment to retail on Tuesday. For the major companies that continue to fight it out at outlets such as Circuit City, observers predict more jockeying for distinction as they try to avoid having their products perceived as interchangeable commodities.
One beneficiary of IBM’s retreat from retail outlets may be Gateway, which sells mostly direct to consumers but also has its own Gateway Country Stores.
