IBM Retail Deal Keys on Profit Over Hardware
NEW YORK ( TheStreet) -- International Business Machines (IBM) is adding retail kiosks and point of sale hardware seen at checkout lines across the globe to the list of ubiquitous tech products that it no longer wants to make or own.
On Tuesday, IBM divested control of its Retail Store Solutions unit to Japan's Toshiba TEC for $850 million, one more signal from IBM that data analysis -- including a retailer data and analytics initiative called Smarter Commerce -- trumps hardware manufacturing.
Like a similar divestiture of its PC business to Lenovo in 2004, IBM's deal shows that it would rather tilt its revenue to high margin consulting and data analysis operations, while allowing others to compete in manufacturing hardware that may increasingly become commoditized, otherwise dubbed by IBM as its "Smarter Planet" strategy.
IBM invested heavily in its Smarter Commerce initiative by way of a December 2011 acquisition of cloud services specialist DemandTec and 2010 purchases of Sterling Commerce and Coremetrics.
Big Blue's multi-decade turnaround has moved it from manufacturing tech hardware toward the IT services market, where its global services consulting unit contributes $60.2 billion to overall revenue of nearly $107 billion, as of 2011.
IBM will also be exiting a point of sale business where it competed against the likes of Toshiba , NCR(NCR) , VeriFone Systems (PAY) and Micros Systems (MCRS) . Previous divestitures like Lenovo had moved IBM from direct competition against Hewlett Packard (HPQ) and Dell(DELL) in some PC and hardware markets with declining sales and profit margins.
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IBM's track record of divestitures and acquisitions may be used as a model by other tech giants like Hewlett Packard and Research In Motion (RIMM) as they iron out strategies to negotiate declining profitability and market share in PC and smartphone businesses. Both companies have strong data security and virtualization assets that could be further emphasized in strategic M&A decisions.
As part of a sweeping overhaul, Hewlett Packard announced in March that it will merge its printer and PC divisions. Meanwhile, the world's largest PC maker is trying to figure out how to use a $10.3 billion acquisition of British software giant Autonomy to help grow revenues that fell in the fourth quarter on declining PC sales, which IDC said fell 5% industry-wide in the U.S last year. In recent years, a string of other acquisitions such as 3Com, Arcsight and 3Par have bolstered HP's non PC-businesses.