From Lenovo of China to that of the world

"On behalf of the Board of the Lenovo Directors I am honored to announced to the world that Lenovo Group has bought IBM's PC division for US$1.25 billion. Under an agreement, Lenovo will acquire IBM's entire global desktop and notebook computer business, including research, development and manufacturing,'' said Liu Chuanzhi, current chairman of Lenovo Group. In the morning of December 8 Liu's remarks marked a complete conclusion after 13 months of negotiations and won prolonged applause and acclaims from hundreds of professionals and media reporters who were present.

The China's largest personal computer maker has bought the "PC industrial founder'' and the traditional business of "Blue Giant'', which brings unlimited reverie.

Building a genuine internationalization firm

The acquisition expands Lenovo's PC business fourfold, giving it an annual sales volume of approximately US$12 billion with an annual output of 11.9 million units and ranking the third in the PC market in the world. It will become the first to enter into the ranks of the top 500 high-tech and manufacturing enterprises in the world.

After the acquisition, Lenovo will take ownership of IBM's "Think" trademark family, including its ThinkPad notebook brand and its ThinkCenter desktop line. It will also buy out IBM's joint venture in Shenzhen (excluding X-series production line), a research and development center in Japan and the Raleigh Research and Development center in North Carolina of the United States, and sales offices in more than 160 countries throughout the world. All this will greatly boost Lenovo's status and influence in global PC industry and reduce the deployment period in globalization.

Yang Yuanqing, current vice-chairman, president and CEO of Lenovo, will serve as chairman of the Asia-Pacific market and turn the enterprise into a genuine international company. By requiring IBM's PC division and forming an alliance with IBM, Yang thinks, Lenovo can integrate the advantages of both sides to obtain its brand recognition and expand sales offices in the world rapidly so that it will turn out more products with efficient operations and advanced technologies. The purchase is an important step for Lenovo to implement its overall strategy of internationalization.

Why does IBM sell its PC business?

Maybe some people will not understand why the founder of PC industry sells its PC division. As a matter of fact, since the 1990s, IBM has started to make strategic transformation and offered group consumers with IT services, which has become a new profit growth source for IBM business. The active price policies of the desktop and notebook PCs made by Dell and H&P have great influence in the sales of IBM's PCs. In 2002, IBM sold its hard disk division to Japanese Hitachi Ltd and PC production division to Sanmina-SCI. Since then, IBM has gradually quitted PC production. So far PC sales have accounted for 10 per cent of its total sales volume with low profits accounting for less than 1 per cent of each share profits. Abandoning the low-profit business makes IMB out of the unprofitable PC market. Because of this IBM has invested more in gainful servers, software and services, which is the policy pursued by Sam Palmisano since he became the chairman of IBM board of directors and CEO.

How to make the huge transaction volume

The transaction volume worthy of US$1.25 billion is a new record high for purchasing overseas IT enterprises by Chinese enterprises. According to the agreement reached by both sides the two computer market players have formed a strategic alliance in PC business worldwide, in which IBM will gain at least 650 million US dollars in cash and up to 600 million US dollars in Lenovo stock, and will take 18.9 per cent of the new Lenovo's equity stake, as the second-largest shareholder, upon completion of the transaction in three years. In addition Lenovo will also assume about US$500 million of net balance sheet liabilities from IBM, which means the total transaction will reach US$1.75 billion if the IBM debt is added in.

How Lenovo will complete one of the biggest Chinese overseas acquisitions at 1.25 billion US dollars? According to Chief Financial Officer Ma Xuezheng, the deal will be completed with part of the 650 million US dollars in cash paid by its own funds and the rest will be paid by bank loans.

How to reach win-win

When talking of if the transnational acquisition can reach double wins, Yang said, the business of both sides is strong in complementarity. IBM has many high-end clients while Lenovo has a great number of medium- and low-end consumers. He said Lenovo would take three stages: first, it will cooperate with IBM in purchasing and manufacturing; in the second stage, it will engage in the integrity of market and sales; and in the final stage it will enter into the area in which neither side has ever involved.

Liu told reporters that both sides have similar elements in making progress and renovation and have the same views on many issues. According to Lenovo's CEO Stephen M. Ward, both sides have common cultural ideas in the areas of renovation, client orientation and creating shareholding value. It is a perfect combination. The future management will be based on senior management personnel and technical management experts and a first-class international management group will be formed. He said in conclusion, "We are confident in the future of the new company.''

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Lenovo is the largest personal computer maker and also the predominant representative for the successful enterprises in China. Lenovo personal computers have taken up a 27 per cent share of China's PC market at present. Liu Chuanzhi founder of the company and the current chairman of Lenovo Group has experienced tests by many challengers. In the middle of 1990s the more competitive products put forward by China Academy of Sciences bore down many demands by foreign suppliers. The company then named as Legend Computers started to turn out convenient PCs for users. In 1997 the sales volume of the company increased in a big margin and stood the first in China's market.

Founded in 1914, IBM (International Business Machine Corporation) has employed more than 200,000 across the world. It personal computer division ranks the third place in the world only next to Dell and H&P. Up to now, IBM has maintained the status with the most patents in the world. Since 1993 IBM has stood first in the number of registered patents in the United States. In 2002 there registered 22358 IBM patents, a record high. Its number of registered patents is equal to the total number of patents registered by 11 biggest IT enterprises in the United States. The IT enterprises include H&P, Intel Sun, Software and Dell.

By People's Daily Online