[April 19, 2012]

IHL Group Reacts to IBM's Sale of POS Business to ToshibaTEC

Earlier this week the retail POS industry had the most significant announcement in the last 10 years, as ToshibaTEC announced the purchase of IBM's (News - Alert) Retail Store Solutions (RSS) Business. Following is an analyst commentary from Greg Buzek of retail research and advisory firm IHL Group, which has tracked the retail POS industry for more than 20 years.

Analyst commentary

The fact that IBM RSS was for sale was one of the worst kept secrets in the industry among analysts. But it was a bit surprising as to who purchased the company. There are some great synergies here, some potential holes, and some dramatic market disruption. The new company will be a joint venture in which Toshiba (News - Alert) will own 80% and IBM 20% for the next three years to aid transition.

Several years ago, RSS was a much larger group than the $1.15 billion revenue that was reported in this week's press release; nearly everything in retail that wasn't related to mainframes or core supply chain fit under RSS. As IBM continued to move its strategies, both corporately and in retail, to a services and software-led sales approach, IBM added acquisitions in BI, Analytics, CRM, Supply Chain, Optimization, and other technologies that expanded the retail business. However, these split the new strategic parts into the software organization. Increasingly, more and more of the influence of IBM in the retail accounts and IBM internally shifted to these software and services components and away from POS.

As HP and later Dell (News - Alert) entered the PC-based POS market, RSS continued to get leaner asthe net selling price of POS systems decreased. Yet at the same time, the overall pie of Retail PC-Based POS grew dramatically over the last 10 years, thanks to lower costs, the move from ROM-based cash registers in hospitality, and the rise of China, Mexico, Brazil and India and other emerging economies.

In IHL's POS Vendor Market Share Data Service, IBM and ToshibaTEC Worldwide currently have 18.8% of the worldwide installed base of units and about 13.7% of the shipments. (Keep in mind, however, we count PCs and Macs being used as cash registers as POS systems, while others may not. So if they only count retail-hardened POS systems, these numbers would be close to double. In addition this includes all hospitality segments like hotels and cruises, casinos, stadiums, etc.) The challenge for IBM has been that the growth has occurred mostly at the low end and in emerging countries, even further challenging margins.

Add to this margin challenge the threat of mobile displacing POS. In our recent Mobile POS Study (Mobile: A Gutenberg Moment for Retail, a Threat to POS), we found that 72% of U.S. specialty stores were planning to offer mobile POS in the next 12-18 months. Additionally, this same group said they would be purchasing 20% fewer traditional POS terminals going forward. IBM doesn't have a mobile story, while ToshibaTEC does.

Click here for the rest of IHL's commentary, which focuses on the future of other major players in the POS industry and the impact of IBM's announcement on the retail industry.

About IHL Group

IHL Group is a global research and advisory firm headquartered in Franklin, Tenn., that provides market analysis and business consulting services for retailers and information technology companies that focus on the retail/hospitality industry. For more information, visit www.ihlservices.com, call 615-591-2955 or e-mail ihl@ihlservices.com.

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