Jidaw Systems

IBM sells its PC Business

IBM and Lenovo Group recently announced that IBM will sell its PC division to China-based Lenovo Group and take a minority interest in Lenovo in a deal valued at $1.75 billion. Lenovo will pay $1.25 billion in cash for IBM's PC business, and IBM will take an 18.9 percent stake in Lenovo.

Lenovo is currently the ninth largest PC maker worldwide, according to the latest market share numbers. Lenovo, is the largest PC maker in China. The company was founded in 1984 as a distributor of IT products. Over the years it started its own PC business, growing into the No. 1 spot in China. It also sells products ranging from cellular phones to supercomputers. 

In terms of PC shipments, IBM has consistently ranked a distant third among vendors worldwide, behind Dell and Hewlett-Packard. IBM's strength in the PC business is its ThinkPad notebooks, which enjoy a strong reputation among corporate clients. The ThinkPad is acknowledged and recognized by many in the corporate world for its inbuilt security and reliability features. 
And to many IBM selling its PC business is an irony. Who would believe IBM would sell its PC enterprise in view of the role IBM played in the development and history of the PC? But enough of the nostalgia, this was a business decision.

Essentially, IBM and Lenovo are coming together to form a joint venture that will make Lenovo the third-largest PC maker in the world, behind Dell and Hewlett-Packard. Based on both companies' 2003 sales figures, the joint venture will have an annual sales volume of 11.9 billion units and revenue of $12 billion, increasing Lenovo's current PC business fourfold. 

According to press releases from both companies, "As part of the transaction, Lenovo and IBM will enter a broad-based, strategic alliance in which IBM will be the preferred services and customer financing provider to Lenovo. 

Lenovo will be the preferred supplier of PCs to IBM, enabling IBM to offer a full range of personal computing solutions to its enterprise and small and medium business clients. 

Stephen M. Ward, Jr., currently IBM senior vice president and general manager of IBM's Personal Systems Group, will serve as the chief executive officer of Lenovo following completion of the transaction. Yuanqing Yang, currently vice chairman, president and chief executive officer of Lenovo, will serve as the chairman of Lenovo post-transaction.

Chuanzhi Liu, current chairman of Lenovo Group, said, "As Lenovo's founder, I am excited by this breakthrough in Lenovo's journey towards becoming an international company. Over the past 20 years, I've watched Lenovo develop into the leading IT company both in China and throughout Asia. Since the beginning, however, our unwavering goal has been to create a truly international enterprise. From 2003 when we changed our international brand name to 2004 when we announced our partnership with the International Olympic Committee, to today's strategic alliance with IBM, I have been delighted to watch Lenovo become a truly world-class company." 

"Today's announcement further strengthens IBM's ability to capture the highest-value opportunities in a rapidly changing information technology industry," said Samuel J. Palmisano, IBM chairman and chief executive officer. "Over the past several years, we have aggressively repositioned IBM to be the world's leading provider of innovation-enabled solutions for businesses and institutions of all sizes, in all industries. This requires single-minded focus on the business client and significant ongoing investments in R&D and the creation of intellectual capital. At the same time, the PC segment of the industry continues to take on characteristics of the home and consumer electronics industry, which favors enormous economies of scale and a focus on individual users and buyers. Today's announcement further strengthens IBM's focus on the enterprise, while creating a new global business that is better positioned to capture the opportunities in the PC industry going forward. 

"In Lenovo we have a partner with powerful competitive capabilities in China and Asia and in consumer and desktop PCs. We have worked very carefully with Lenovo to put in place all the elements of a strong, successful, enduring global alliance." 

So who gains what? From Lenovo's point of view, they cease to be a China-only company as this arrangement will allow expansion into the lucrative U.S. and European markets. On IBM's part, this is an opportunity to concentrate of its core areas while exploring opportunities for its servers and services in the huge and fast growing Chinese market. The Chinese market - the world's fastest growing IT market - is a prime target of the top US and European technology leaders.

However, Lenovo will have to do a lot to maintain IBM's PC customers, especially the ThinkPad brand and customer base. How it addresses this challenge will be interesting since it has no experience of selling and doing business with large US corporations.

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