China buys IBM PC business, $1.75bn

[SONYFX]

http://www.guardian.co.uk/busi...0,3604,1368997,00.html

Lenovo buys IBM PC business

George Wright and agencies
Wednesday December 8, 2004

IBM, which revolutionised the global computer industry when it launched its first desktop in 1981, has sold its PC business to a Chinese group in a $1.75bn (£900m) deal, it was confirmed today.
The acquisition makes the Beijing-based Lenovo Group the world's third-largest PC maker, and is the latest in a series of overseas buyouts by Chinese companies. It is expected to quadruple Lenovo's sales.

"This acquisition will allow Chinese industry to make significant inroads on its path to globalisation," the Lenovo chairman, Liu Chuanzhi, said. "It has changed the structure of the global PC manufacturing business."

Lenovo, which is Asia's biggest computer manufacturer, will take over IBM's desktop PC business - including research, development and manufacturing - for $1.25bn in cash and shares, with IBM retaining an 18.9% stake. Lenovo, formerly known as Legend, also agreed to take on liabilities raising the value of the deal to $1.75bn.

A statement issued by Levono today said the acquisition would bring "IBM's leading enterprise-class PC technologies to the consumer market and give Lenovo global market reach beyond China and Asia ... Lenovo will have combined annual PC revenue of approximately $12bn and volume of 11.9m units, based on 2003 business results - a fourfold increase in Lenovo's current PC business."

The Chinese company will be allowed to use IBM's brand name under a licensing agreement, Mr Liu said. The companies appear to have structured the deal to ensure that IBM retains some influence in the PC making business, despite its small stake.

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Lenovo, which was founded in 1984, will move its international headquarters to New York. The company was initially set up to distribute equipment made by IBM and other companies, but was selling PCs under its own brand name by 1990.

IBM's first computer went on sale for $1,565 in early 1981. The processor chip came from Intel and the software from a fledgling Microsoft. By the late 90s, however, the company's PC division had run up huge losses, leading it to pull back from the retail market and focus instead on corporate and government clients. As a result, its share of the global PC market fell to around 6%.

The company now focuses on consulting and software, outsourcing much of its manufacturing. The sale to Lenovo is expected to cut production costs and breathe new life into the PC unit, which now accounts for only 12% of group revenues and is barely profitable.

"The IBM brand will gain great recognition in China, the world's fastest growing economy and the world's fastest growing market for PCs," John Joyce, the IBM senior vice president and group executive of IBM global services said.

The transaction is expected to be completed by the second quarter of 2005. Until then, both companies expect their existing PC operations, including customer service and product availability, to continue as normal. Once the transaction has been completed, these operations will be gradually integrated.

Around 10,000 of IBM's 320,000 employees will move to Lenovo, joining the Chinese company's current staff of around 9,000. Fewer than a quarter of those 10,000 are based in the US, and 40% already work in China.

Lenovo said the new PC maker's chief executive would be Stephen Ward Jnr, an IBM senior vice president. Lenovo's current president and chief executive officer, Yang Yuanqing, will be chairman of the PC business.

The company would need to branch out in services and other areas as profit margins for manufacturing shrink, Duncan Clark, managing director of the consulting firm BDA China Ltd, said. "It's not going to be easy, but they're certainly not shying away from any of these challenges."

He suggested that Lenovo name the new venture Big Red, a play on IBM's Big Blue nickname and China's red national flag.

Lenovo's shares were yesterday suspended in Hong Kong pending announcement of the deal, and were to resume trading tomorrow.

 

[Chinadefender]

Dell was not happy with that.
My friends prefer IBM thinkpad to Lenovo, because its qulity is rather better, but the design of thinkpad is rather outdated
Dell is always with various problems, but its aftersale service is superior.
Anyway, Lenovo sells best in Chinese market.
How about Dell in American market?

 

[Zebo]

China will keep the quality you can bet on that. China is where korea was in the 80's and Japan was in the 60's.. 5 more years and I think China will make best quality stuff. They are getting the tech and all equipment with this buy of IBM.

 

[Thump553]

Pretty sad day for USA and IBM. Now even our marquee brandnames are being "outsourced."

 

[Chinadefender]

Pretty sad day for USA and IBM. Now even our marquee brandnames are being "outsourced
---------------------------------------------------

1.This is just a branch of IBM, and this branch runs not well with $0.5bn liabilities!!! This is not outsourcing obviously.
2.IBM is now the second biggest shareholder of Lenovo.
3.This deal is of high risk. At least Dell predicted it would not be successful. But I think Dell should improve its quality first

 

[alent1234]

PC's are a commodity and most people buy on price. This is why IBM never became as big as Dell in the PC business. People look at two computers and will usually buy the cheapest with the same feature set.

It seems like US companies make new products and then get out of the market when they become commodities and ripe for cheap imports. Motorola and Texas Instruments have done the same thing when their products became commodities.

 

[Chinadefender]

En??.surely not

how about Microsoft and Intel?

They still monopolize the global market and seems too big for any comparative challenger

And GE?

 

[GoPackGo]

Originally posted by: Chinadefender
Pretty sad day for USA and IBM. Now even our marquee brandnames are being "outsourced
---------------------------------------------------

1.This is just a branch of IBM, and this branch runs not well with $0.5bn liabilities!!! This is not outsourcing obviously.
2.IBM is now the second biggest shareholder of Lenovo.
3.This deal is of high risk. At least Dell predicted it would not be successful. But I think Dell should improve its quality first

The manufacturing of these systems have been "outsourced" to the cheapest builder for years

 

[bozack]

as I said in the other thread....

the question is who does this benefit....

obviously IBM sees gains in this move, and Levono certainly do because of the tech aquisition, more so the brand name association and the doors it opens in terms of market accessibility (I assume it means Levono will take over support of all currently deployed IBM systems on the market)....

This will most certainly be better for the average American consumer as Levono will be able to better compete on a price level with makers such as Dell and Gateway whereas IBM had to charge a premium...but for American industry, especially in the tech market this is bad IMHO as it means more of "our" tech being shored to China and away from here....as someone said in another thread we have just lost one of our "marquee" brands in terms of PC hardware/systems.

Just one more reason for me to like IBM even less, thank god I no longer work for them.

I doubt MS will ever make a similar move, however GE and Intel could certainly do it and that IMHO would be also bad for US as a whole.

 

[GrGr]

Good deal for China. They get something for their dollar holdings before the dollar devalues further. China is really starting to flex it's muscles.

See also:

Trade persuades Europe to review China arms ban

Simon Tisdall
Wednesday December 8, 2004
The Guardian

China's demand that Europe lift its 15-year-old embargo on arms sales will receive a sympathetic hearing at today's EU-China summit in The Hague, despite fierce opposition from an unlikely alliance of human rights groups and the Bush administration.

France and Germany, keen to exploit business opportunities in China's booming markets, have led calls to end the ban. Other EU governments, including Britain, are likely to go along, according to one foreign minister involved in internal discussions.

...

 

[piasabird]

With most computer manufacturers over 50% of the company works overseas. I would bet that almost all Dell computers are actually put together overseas. Some high end servers may be assembled in the US. That is probably why it takes so long for a custom order.

Computer parts are manufactured in various places. Many motherboard companies started in Taiwan. However, many of them like Asus are opening plants in China. Intel also has made parts in Malaysia (SPELL).

Edit
We just bought 4 IBM X-Series Servers and it came kind of like a bare-bones box and all the parts came to our office and then the firm we ordered it through assembled it and installed the server operating system.

 

[RabidMongoose]

Originally posted by: Chinadefender
En??.surely not

how about Microsoft and Intel?

They still monopolize the global market and seems too big for any comparative challenger

And GE?

Even Intel changed their focus a very long time ago. But of course the situations are pretty different now.

 

[frankie38]

Great news for the world and China....now they just need to do a buy out of Taiwan and they dominate the PC world.

 

[GrGr]

Come to think of it. If the PC division of IBM is worth $1.75 bn and the monetary cost of the US invasion of Iraq is $5 bn a month it isn't exactly peanuts going down the drain in Iraq.

 

[alent1234]

Originally posted by: Chinadefender
En??.surely not

how about Microsoft and Intel?

They still monopolize the global market and seems too big for any comparative challenger

And GE?

MS and Intel are trying like mad to find new markets outside of the PC. MS is into TV, video games, mobile devices, cell phones and other stuff i can't remember. Intel is in mobile, networking, enterprise networking (they make the boards that control IVR systems, or the crap that you have to put up with when you call credit card and bank support).

Jack Welch wrote in his book that when he was CEO of GE he sold off commodity business lines because they were ripe for cheap imports.

 

[alent1234]

Originally posted by: frankie38
Great news for the world and China....now they just need to do a buy out of Taiwan and they dominate the PC world.

too late, Taiwan has been buying out China for a little while now. Who do you think controls a lot if not most of the electronics factories there?

 

[SuperTool]

Originally posted by: alent1234

Originally posted by: frankie38
Great news for the world and China....now they just need to do a buy out of Taiwan and they dominate the PC world.

too late, Taiwan has been buying out China for a little while now. Who do you think controls a lot if not most of the electronics factories there?

Chinese government is ultimately in control. They just let foreign investors have their fun, but never forget who is in charge.

 

[alent1234]

china wouldn't dare make a move against foreign investors. it may scare them off and pull all of their money out of the country, leaving them with a depression

 

[IdaGno]

Meanwhile, big brother passes some 'Intel reform' legislation to supposedly prevent another 911.

NOT TO WORRY!

Everything's gonna be just peachy.

 

[raildogg]

Originally posted by: frankie38
Great news for the world and China....now they just need to do a buy out of Taiwan and they dominate the PC world.

China is a enemy is the USA and Taiwan is a great friend of USA. Dont forget that.

So great news for China doesnt mean great news for the world. I think we are increasing the number of missles being pointed at us.

its ok though, as long as our economy grows its fine, even if it leads to our destruction

 

[wchou]

Are we trying to modernize China like we did to Japan? I think the Chinese is starting to love America and will learn to adapt to our ways of life. This could be beneficial if they start to eat, dress and live like us as well. buhahaha, the world is nothing more then a blind follower of whoever is best. China is becoming like Americans, its good!
We rule the world, time to put up more US Flags around my house to show great patriotism.

 

[Siddhartha]

Lenovo bought IBM's PC technology, expertise, and skill\talent base which would have taken years, perhaps decades to acquire on its own. Is there another PC company in China?

It will take Lenovo a couple of years to shape its new business to its culture. By this I mean if you work in IBM PC diviosion it is time to start looking for a new job or career.

Who knows, IBM will probably buy Lenovo in five years

 

[source189]

Originally posted by: Zebo
China will keep the quality you can bet on that. China is where korea was in the 80's and Japan was in the 60's.. 5 more years and I think China will make best quality stuff. They are getting the tech and all equipment with this buy of IBM.

i believe too ....

 

[Chinadefender]

Lenovo bought IBM's PC technology, expertise, and skill\talent base which would have taken years, perhaps decades to acquire on its own.
---------------------------------

Yup. This deal is of high risk, anyway.

Any M&A should be very risky, but it does not mean that IBM employees must look for new jobs. Perhaps new career opportunity

And IBM is the second biggest shareholder of Lenovo.