IBM Mulling Divestitures, Document Shows

Records indicate Big Blue may be looking to pare down underperforming units.

Paul McDougall

June 15, 2009

2 Min Read
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IBM may spin off some of its internal business units, according to a document filed in connection with an employee lawsuit.

IBM in May sued mergers and acquisitions chief David Johnson, who recently jumped ship to assume a senior position at computer maker Dell. IBM claims Johnson violated a noncompete clause and that his departure to a competitor would be injurious because Johnson is aware of Big Blue's innermost secrets.

Johnson knows "about all of the acquisitions and transactions that IBM is considering," IBM senior human resources VP Randall MacDonald stated in a declaration filed in the case earlier this month. "He also knows what IBM units are under consideration for divestiture."

Johnson further "knows the transactions that IBM has considered and decided not to pursue," MacDonald continued. IBM earlier this year backed off an offer to acquire Sun Microsystems, and Sun ultimately struck a deal to be acquired by Oracle for $7.4 billion.

In his declaration, filed in U.S. District Court in Manhattan, MacDonald provided no further details on which specific IBM units are "under consideration for divestiture." However, CEO Sam Palmisano has shown little reluctance to rid his company of product lines, mainly hardware, where margins are low or where prospects for future growth are limited.

Palmisano sold off IBM's famous PC business, including the high-profile ThinkPad brand, to China's Lenovo in 2005 for $1.25 billion. He also jettisoned the company's disk drive unit by selling it to Hitachi for $2.05 billion in 2002, and he sold the commercial printer operation to Ricoh under a $725 million deal in 2007.

Given Palmisano's focus on building IBM's software and services portfolio and divesting underperforming hardware lines, it's possible that some parts of Big Blue's server and storage business could be on the block. In the most recent quarter, sales of commodity System x servers plunged 32% year over year.

Meanwhile, IBM partner Lenovo has been building its presence in that particular niche of the server market.

Also in the quarter, sales of IBM's system storage products fell 20%.

Other parts of IBM's hardware lineup appear reasonably healthy and thus might be safe from the ax. System p revenue rose 8% and delivery of System z mainframe computing power increased 12%, though mainframe-related revenue dropped 6%.

An IBM spokesman declined to comment on the company's plans.

Meanwhile, IBM's lawsuit against Johnson, first reported by InformationWeek, remains ongoing. The executive claims his noncompete deal with IBM is invalid, in part because he intentionally signed the agreement in the wrong place, according to court records.

Executives from both Dell and IBM are scheduled to provide depositions this week.

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About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

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