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IBM took advantage of the Chinese

D

Dari

Lifer
link

Aside from the $650 million in cash and $500 million in assumed debt, the Chinese seem to have gotten taken to the cleaners.

With 18.9% stake in Lenovo, IBM will be the second largest owner after the Chinese government. It's makes you wonder if IBM did this to get future contracts from the Chinese government.

Lenovo's PC headquarter will move to upstate New York from Beijing. Weird.

Lenovo will be saddled with 10,000 IBM employees. Talk about dumpage.

An IBM executive will become the new CEO of Lenovo. What's wrong with the current CEO?

Lenovo will be able to license the IBM name for 5 years. WTF? After that, then they're just another no-name commodity PC maker from Asia, right? Five years isn't a lot of time to get brand recognition unless you plan on staying upmarket where IBM currently is, which would undermine your profit.

That would mean that Lenovo just leased the IBM name for 5 years. Unless they're desperate, it's not too bright.
 
Wow, they did get the better end of that deal. Two things jump out at me...they get a 18.9% stake in Lenovo and Lenovo can only license the name for 5 years. After 5 years IBM can just go back to making PC's again under their same name! And they get the CEO of Lenovo, hah, now they control the company that bought them out. IBM's PC computer business wasn't even that profitable, it was their least profitable branch if I remember correctly. Nice job IBM.
 
you guys are right...the two of you are smarter than one of the biggest and most successful companies in China...
 
Originally posted by: NeoV
you guys are right...the two of you are smarter than one of the biggest and most successful companies in China...
Click to expand...

They're successful because of cronyism. When the Chinese government invests in you, there's no way you're going to lose a major contract, unless someone couldn't wink right. Furthermore, a Chinese company that's partly owned by the Chinese government doesn't pay the many tariffs and taxes that foreign competitors have to pay.

Here they are, flushed with cash and wanting to expand globally. They became starry-eyed over the IBM halo. From that point, they were at a major disadvantage because the IBM lawyers could smell their eagerness to do business from 10,000 miles away. In the end, they got taken advantage of. I bet they'll learn from this lesson.
 
I'm looking at the picture drawn so far in this thread and, to play devil's advocate, will claim it's only a line drawing. So far the colors haven't been described. One big point that was missed:

About 10,000 IBM staff will move to the new enterprise - about 2,300 in design, marketing and sales in the US and the rest in manufacturing in China.
Click to expand...
Manufacturing in China with its cheap labor will be hard to compete against. They'll be able to produce some ultra-cheap computers under the globally recognized IBM name. They'll be able to market and sell them globally because they are buying the marketing and sales infastructure as well, which is a very expensive undertaking to do position yourself globally in, as IBM has. And 5 years is not a long time for a person, but for computers and technology it's close to an eternity.

While the amount sounds a bit outrageous, I bet the Chinese are slapping themselves on the back over their coup.

It also makes me wonder exactly what the Chinese are up to as well, considering all their national infastructure expansion. My intuition is that the Chinese have finally understood that the way to world domination is not by military means, but by economic ones, and they are positioning themselves to go there fast.
 
Originally posted by: TastesLikeChicken
I'm looking at the picture drawn so far in this thread and, to play devil's advocate, will claim it's only a line drawing. So far the colors haven't been described. One big point that was missed:

About 10,000 IBM staff will move to the new enterprise - about 2,300 in design, marketing and sales in the US and the rest in manufacturing in China.
Click to expand...
Manufacturing in China with its cheap labor will be hard to compete against. They'll be able to produce some ultra-cheap computers under the globally recognized IBM name.
Click to expand...

/me looks under my ThinkPad T40..."Made in China"
 
Not that hard for an aggressive marketing campaign to equate Lenono and IBM, if they are used together for 5 years.

How long did it take for Pentium to become synonymous with Intel?
 
Ironically, the T4x is made by a joint venture between IBM and Great Wall Technology. Great Wall is the arch-rival of Lenovo.

Originally posted by: Yomicron
/me looks under my ThinkPad T40..."Made in China"
Click to expand...

 
Originally posted by: Yomicron
Originally posted by: TastesLikeChicken
I'm looking at the picture drawn so far in this thread and, to play devil's advocate, will claim it's only a line drawing. So far the colors haven't been described. One big point that was missed:

About 10,000 IBM staff will move to the new enterprise - about 2,300 in design, marketing and sales in the US and the rest in manufacturing in China.
Click to expand...
Manufacturing in China with its cheap labor will be hard to compete against. They'll be able to produce some ultra-cheap computers under the globally recognized IBM name.
Click to expand...

/me looks under my ThinkPad T40..."Made in China"
Click to expand...
That's part of the point. Lenovo has been contracted for years to produce laptops, and for other companies than IBM. Now they can take them direct to market globally - with an existing name and sales and marketing infastructure - instead of being a third party, much like Dell does.
 
Originally posted by: ntdz
After 5 years IBM can just go back to making PC's again under their same name!
Click to expand...

Umm... but IBM isn't gonna be coming back into the PC business.

Originally posted by: Dari
Five years isn't a lot of time to get brand recognition unless you plan on staying upmarket where IBM currently is, which would undermine your profit.

That would mean that Lenovo just leased the IBM name for 5 years. Unless they're desperate, it's not too bright.
Click to expand...

You can do a lot with 5 years. Take a look at HP-Compaq. 5 years ago, I would say HP computer blow chunks and you should avoid them like the plague. Nowadays if someone bought and HP, I don't think it's too bad of a move. Take a look at the IBM Deskstar Hard drives. That went from top of the line to crap within a year.

Bottom line, Lenovo bought the IBM Thinkpad brand recognition to break into the US PC market.
 
China's Lenovo buys IBM's PC Division 10:04AM
After a week of rumour and speculation, Chinese computer manufacturer Lenovo has bought IBM's Personal Systems Division for around $1.75 billion.
IBM will also gain a 18.9 per cent stake in Lenovo and Stephen Ward, IBM's current general manager for the personal systems group will become CEO of Lenovo based in New York. The current CEO Yuanqing Yang, the company's current CEO will move up to become Chairman.

The new Lenovo will have combined revenues of $12 billion and sales of almost 12 million PCs and notebooks based on 2003 numbers which will immediately put the company third in the world for shipments behind Dell and Hewlett Packard.

The new combined company will have 19,000 employees, 10,000 of which will be former IBM staff. 40 per cent of those are already in China through the manufacturing facilities the company owned jointly with Great Wall computers in International Information Products.

Lenovo not only gains the IBM product range, distribution, operations and R&D facilitiies but also, crucially the 'Think' and IBM brand names. Big Blue will also become Lenovo's preferred service provider and customer financer.

Lenovo will also benefit from marketing and sales leads provided by the company's 30,000 strong sales force and through IBM.com. Of course, Lenovo will be IBM's preferred supplier of PCs to IBM in all business segments from enterprise down to small businesses.

Under the terms of the deal, due for completion by the end of Q2 2005, IBM will receive $650 million in cash

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and $600 million worth of Lenovo shares currently traded on the Hong Kong stock exchange. IBM will also take over some $500 million worth of liabilities from IBM. Lenovo will be paying for IBM's PSD through its own cash reserves and through borrowing.

It goes without saying that this is a great leap forward for Lenovo. Although a major supplier of PCs in China, the fastest growing market for computers in the world, it is virtually unknown outside the People's Republic. Suddenly it is now the third biggest manufacturer in the world with lines into some of the world's biggest corporations that many of its rivals would die for. It also has the backing of the world's biggest computer company.

From IBM's point of view, it gets out of a market that had become less and less in tune with the company's long term strategy. Unwilling to position itself effectively against the mail order strategy of Dell the company had found its products forced back into its corporate strongholds. Its brand reputation, although high in business, was a positive turn off for customers who assumed that 'IBM' meant suited and booted and not consumer friendly. Lenovo may be able to give the PSD a fresh start in the consumer market. The new company will also have a huge advantage when it comes to selling PCs to the largest population in the fastest growing economy in the world.

For IBM as a whole, it allows the company to concentrate more on its strengths in R&D, consultancy and services and hardware development where it can genuinely add value. From Big Blue's point of view the PC that it gave birth to has become a commodity product that it could no longer gain sufficient margin.

IBM's PSD in the UK will be separated and will be setting up business away from IBM's headquarters on London's south bank and in Basingstoke.

For the industry as a whole, it marks the end of an era. The IBM PC, launched in 1981 changed the world. It'll be strange without it.


---

PCPRO 12/08/2004
 
Lenovo bought a commodity business where the price you charge is continually falling, and anyone can get in due to low cost of entry. Dell is successful because they worked out the lowest cost business model. When you are buying a PC most people don't care about support or whatever. They want the lowest price for the task they are going to use it for.

The real money is made by Intel, AMD, MS, ATI and Nvidia. What is to stop someone from starting another PC business in a lower cost country than China?
 
Originally posted by: alent1234
What is to stop someone from starting another PC business in a lower cost country than China?
Click to expand...

:shocked: The Burundi B-1000! Because it takes a village to plug in a computer.


Now with two year tribal tech support in several different dialects.

When others can't, African!
 
Originally posted by: alent1234
and people laughed at the idiot that built computers in his dorm room 20 years ago
Click to expand...
Garage, it was a garage. Even then, overhead was critical. 😉
 
Originally posted by: alent1234
i thought michael dell was at the Univ of Texas when he started the company?
Click to expand...
You are correct, sir. I was thinking Steve Jobs, and several years earlier.

 
If I`m not mistaken, the real money in the desktop PC industry comes from the lucrative corporate tech support contracts.

My question is, who will be handling these contracts once IBM ThinkPad becomes the Lenovo ThinkPad?

As far as our client(s) are concerned, IBM tech support was top notch and a good deal better than Dell`s.

Interesting how IBM is becoming more focussed lately; on microprocessors (Xbox2, PS3, etc.), Professional Services (superior to Deloitte and EDS imo), etc.

Hard drives - dropped. Now the ThinkPad and desktop PCs - dropped.
 
Originally posted by: Perknose
Originally posted by: alent1234
and people laughed at the idiot that built computers in his dorm room 20 years ago
Click to expand...
Garage, it was a garage. Even then, overhead was critical. 😉
Click to expand...

that's right because if you didn't have a roof over your head, you might get rained on.
 
Originally posted by: LocutusX
If I`m not mistaken, the real money in the desktop PC industry comes from the lucrative corporate tech support contracts.

My question is, who will be handling these contracts once IBM ThinkPad becomes the Lenovo ThinkPad?

As far as our client(s) are concerned, IBM tech support was top notch and a good deal better than Dell`s.

Interesting how IBM is becoming more focussed lately; on microprocessors (Xbox2, PS3, etc.), Professional Services (superior to Deloitte and EDS imo), etc.

Hard drives - dropped. Now the ThinkPad and desktop PCs - dropped.
Click to expand...



the margins are a lot higher in processors, software and services than in the box. Dell is good at cutting costs and selling enough boxes to make money on the volume. No one else has been able to get their margins to that of Dell.
 
Originally posted by: LocutusX
If I`m not mistaken, the real money in the desktop PC industry comes from the lucrative corporate tech support contracts.

My question is, who will be handling these contracts once IBM ThinkPad becomes the Lenovo ThinkPad?

As far as our client(s) are concerned, IBM tech support was top notch and a good deal better than Dell`s.

Interesting how IBM is becoming more focussed lately; on microprocessors (Xbox2, PS3, etc.), Professional Services (superior to Deloitte and EDS imo), etc.

Hard drives - dropped. Now the ThinkPad and desktop PCs - dropped.
Click to expand...

Funny how opinions/experiences differ..of the two companies I have worked for, both who have IBM desktop support contracts, both have had nothing but complaints on quality of service...the only people I have met that were impressed with IBMs tech staff were those at Lotus and Lotus is owned by IBM. I have worked for IBM as a "tech" and have dealt with their support on numerous occasions and honestly I am less than impressed with both the quality of people they hire and or their business/employee practices.
 
It's a great move by both. Lenovo can do what Lenovo does best, which is build cheap commodity PC's. IBM can concentrate on what it does best, which is high value added products and services.
 
Licensing the IBM name for five years is not an issue. I think that's how Lexmark got started, and they have pretty good name recognition.
 

That would mean that Lenovo just leased the IBM name for 5 years. Unless they're desperate, it's not too bright.[/quote]

I can see the advertising now after five years are up:

Dude!!! Your getting a Leno!!


:light:
 
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