ALKHOBAR, 14 December 2004 — The talk of the tech world for the last few weeks has been about Lenovo Group of China’s plans to acquire IBM’s personal computing division. Initial reports released by IBM last week state that the transaction involves Lenovo paying $1.25 billion in cash to IBM with a total transaction consideration of $1.75 billion. IBM will take an 18.9 percent equity stake in Lenovo. The deal is expected to be completed in the second quarter of 2005. The company created through the deal will be the world’s third largest PC business with approximately $12 billion annual revenue. Lenovo will manufacture about 12 million PCs annually out of a global total of 150 million PCs. While that’s the broad outline of the venture, what does it mean for IBM’s corporate and consumer clients in the Middle East?
“Nothing will be changing imminently,” Sameh Farid, operations manager, IBM Middle East, Egypt and Pakistan, told Arab News in a conference call from Dubai. “Our customers will see absolutely no changes in the near future. Our people and services will remain the same. We will even be following the same previously approved product plan for at least the next 18 months. All employees in IBM’s PC division in the Middle East will transfer to the new organization in their current capacities and current positions.”
Farid said that the deal still has to pass by several regulatory authorities and the shareholders of both companies. However, Lenovo Holdings, Lenovo Group’s largest shareholder, has already agreed to vote in favor of the transaction. After the deal is done, IBM will be Lenovo’s second largest shareholder. While the transaction is being completed, both companies expect their existing PC operations, including customer service and product availability, to continue as usual. Following the closing of the transaction, Lenovo expects customer service and product availability will go on as usual as the two companies’ operations are integrated.
“Once the deal is completed, through its long-term, strategic relationship with the new Lenovo, IBM will continue to offer end-to-end IT solutions, incorporating Lenovo PCs used in on demand computing solutions,” said Farid. “Business partners, dealers and IBM client teams will continue to support customers and offer the same high-quality ThinkPads, ThinkCenters and ThinkVantage technologies. The new Lenovo will deliver top-notch products, lowest total cost of ownership and higher productivity.”
Even in the long term, since the Middle East is not a manufacturing center for IBM’s PCs, the region will not experience much direct impact from the deal. The headquarters of Lenovo’s new PC business will be in New York and it will have major operations in Raleigh, North Carolina, in the US and in Beijing. Stephen Ward, currently the senior vice president and general manager of IBM’s personal systems group, will become chief executive officer of Lenovo. Yuanqing Yang, currently vice chairman, president and CEO of Lenovo, will become chairman of Lenovo once the deal is completed.
Lenovo will have about 19,000 employees following the acquisition. Of these, about 9,800 are current IBM employees, of which about 4,000 are based in China. Lenovo has made a commitment to hire all employees of IBM’s PC Division but the long-term future of some employees currently associated with the IBM’s PC manufacturing may be in doubt. About 55 percent of IBM’s PCs are currently manufactured in China with the remainder manufactured at facilities in Mexico and Scotland. After the acquisition by Lenovo, most of the PC manufacturing will be done in China.
“The new Lenovo will have significant competitive advantages, among them IBM’s powerful worldwide distribution and financing networks, the highly regarded Think and Lenovo brands and world-class service and support for enterprise customers and consumers,” Farid said. “And the new Lenovo will be the preferred supplier of PCs to IBM.”
He added: “Due to Chinese efficiency in manufacturing and the economies of scale, we expect that Lenovo will be able to offer the IBM PC brands that consumers know and respect, at more competitive prices. Lenovo products will initially be primarily branded with the IBM logo to leverage the strong market image of the IBM brand. We expect that over a 60-month period there will be a transition to an IBM endorsement of the Lenovo-branded products.”
The deal has been well received by analysts who see it as enabling IBM to focus strongly on high-value solutions for the enterprise and small and medium-sized business segments while gaining access to Lenovo’s 4,400 retail outlets in China. Lenovo will get global reach, leading R&D capabilities and a powerful brand to push increased worldwide sales.
Chuanzhi Liu, current chairman of Lenovo Group, said: “As Lenovo’s founder, I am excited by this breakthrough in Lenovo’s journey toward 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.”
