Late last week, IBM revealed that its PC business, which China's Lenovo recently agreed to buy for US$1.75 billion, has failed to produce a profit since at least 2001, accumulating nearly US$1 billion in losses.

IBM released the figures for its PC division in a mandatory filing with the US Securities and Exchange Commission regarding the planned sale to Lenovo. In recent years, IBM has not publicly disclosed earnings for its PC business, opting instead to include figures for PCs within the totals for other business segments such as their more profitable server business. In its 2004 report, IBM indicated overall PC sales were up thanks to greater demand for notebooks, but that growth was undermined by weak desktop sales.

IBM's filing revealed a net loss of US$139 million on sales of US$5.2 billion for its PC unit in the first half of 2004, a rise of 43.2% over a loss of US$97 million in 2003. It appears that if IBM had factored in the cost of deducting employee stock options, which their new accounting rules for 2005 require, losses for the first half of 2004 would have risen by an additional US$10 million. In all, IBM's computing unit lost US$397 million in 2001, US$171 million in 2002, and US$258 million in 2003. Sales for those three years registered US$10.1 billion, US$9.2 billion, and US$9.6 billion respectively. Cumulative losses since 2001 amount to US$965 million on total sales of US$34.1 billion. 

The release of the earnings figures for IBM's PC unit caused Hong Kong investors to dump Lenovo stocks last Friday. Many industry observers believe that the numbers spell trouble for Lenovo and call into question the prudence of its recent acquisition of a PC business that has consistently suffered losses. In early December, Lenovo agreed to pay US$650 million in cash, as well as assume US$500 million in debt, and transfer US$600 million in shares to IBM in order to obtain its PC business. Under the terms of the deal, Lenovo gains access to the IBM brand for five years while IBM holds 18.9% stake in the newly expanded Lenovo.