News: IBM Selling Personal Computer Unit

Howell

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The New York Times said in its Friday editions that IBM is in serious discussions with the Lenovo Group, China's biggest maker of personal computers, and at least one other unidentified buyer for the unit.

IBM has refocused on the corporate server and computer services businesses, but was a major force in driving personal computing into the mainstream with its introduction of the IBM PC in 1981.

The Times said the business up for sale would include the entire range of desktop, laptop and notebook computers made by IBM. The sale would likely be in a range of $1 billion to $2 billion, the report said.

http://www.informationweek.com/story/showArticle.jhtml?articleID=54800034
 

Fushigi

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Personally, I think this is a mistake. Many companies (like my employer) standardize on a single brand for all PC products - desktops, laptops, and servers. If the desktops & laptops aren't available, why would these companies continue to buy IBM servers?

I think IBM would do better to subcontract out the design & manufacture sides. Keep marketing & distribution or even sub those out as well. But keep the brand, especially ThinkPad, intact under the IBM umbrella.
 

P5-133XL

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Sorry to disagree Fushigi but I think this is an excellent decision for IBM. IBM has not been making much money in that market for years. I say good for them: Getting out while there is still a market is a good decision. PC's for the most part have become a commidity market where no one makes money.

Now for everyone else it portends less competition and more expensive PC's of lower quality. Let's all give a big monopoly chear for Dell.

P.S. IBM doesn't really make much money on their server's either. Their profit center is, and has been for several years, is selling businesses IT services. All IBM is doing is dumping their peripheral businesses and getting back to their core profit making center.
 

sechs

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I can see them getting out of the desktop market. IBM has been nothing special on your desk for many years.

Laptops, however, are a different deal. Everyone has at least heard good things about Thinkpads.
 

Fushigi

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P5-133XL said:
Sorry to disagree Fushigi but I think this is an excellent decision for IBM. IBM has not been making much money in that market for years. I say good for them: Getting out while there is still a market is a good decision. PC's for the most part have become a commidity market where no one makes money.

Now for everyone else it portends less competition and more expensive PC's of lower quality. Let's all give a big monopoly chear for Dell.

P.S. IBM doesn't really make much money on their server's either. Their profit center is, and has been for several years, is selling businesses IT services. All IBM is doing is dumping their peripheral businesses and getting back to their core profit making center.
IBM will lose some customers who want an end-to-end solution provider as they will no longer offer end-to-end products. Some of those customers will be users of IBM's services as well, so they will probably lose some services business as part of the fall out. I'm sure IBM has weighted the risks and is willing to accept them; it just seems to me like intentionally eliminating part of your customer base is an odd business practice.

My point boils down to this: Even if IBM doesn't really profit from the desktop/notebook market, it would seem like a 'loss leader' worth keeping around for the other business it can drive.
 

Mercutio

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It's very much like the deal between IBM and Hitachi. It's a joint venture with IBM as a minority partner, and license for Lenovo to use the names for some period of time.

Yes, I'm worried about how that will change Thinkpad build quality but apparently IBM has been outsourcing the actual assembly to some Asian company for the last few years anyway.

It's a damned shame of course. But most of us know how hard it is to differentiate your desktops from the 3 million other companies that make PCs, and how hard it is to compete on price. The business world sees PCs as commodities. Someday they'll probably be seen as appliances. I shake my head at it now but honestly, I wonder how many firms will ride that sinking ship all the way down.
 

Fushigi

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IBM Press Release


ARMONK, N.Y. and BEIJING, CHINA, December 7 and 8, 2004 - Lenovo Group Limited (HKSE: 992; ADR: LNVGY), the leading Personal Computer brand in China and across Asia, and IBM (NYSE: IBM) today announced a definitive agreement under which Lenovo will acquire IBM’s Personal Computing division to form the world’s third largest PC business, bringing IBM’s leading enterprise-class PC technologies to the consumer market and giving Lenovo global market reach beyond China and Asia.


Lenovo will have combined annual PC revenue of approximately US$12 billion and volume of 11.9 million units, based on 2003 business results -- a fourfold increase in Lenovo’s current PC business. Lenovo’s new PC business will benefit from a powerful worldwide distribution and sales network covering 160 countries, global brand recognition through the combination of IBM’s highly regarded “Think” brand notebook franchise and Lenovo’s leading brand recognition in China, enhanced service and support for consumers and enterprise clients, and consumer strength and market leadership in China, the world’s fastest growing IT market. After the transaction is completed, Lenovo will boast leading notebook enterprise offerings, leading R&D and expertise in product differentiation, ensuring greater innovation and enhanced product selection for customers.


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.”


IBM will have an 18.9% ownership share in Lenovo Group and is expected to recognize a gain on the sale following completion of the transaction. There will be minimal financial impact resulting directly from the transaction to IBM’s fourth quarter 2004 results.


“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. IBM will continue to provide our clients with outstanding IBM- and Think-branded PCs through our alliance.
And IBM will play an important role in the home and consumer markets by creating the advanced microprocessor and open software technology for the next-generation computing platform -- opportunities that play to IBM's unique innovation capabilities."


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 continue as usual as the two companies’ operations are integrated.


Yuanqing Yang, current president and chief executive officer of Lenovo, said, “The development of the Internet brings both great opportunities for the development of the PC industry and also significant challenges. To succeed, PC companies need to have global scope, leading-edge technology and highly efficient operations. Through acquiring IBM’s global PC business and forming a strategic alliance with IBM, Lenovo will absorb and integrate the skills from both sides, and acquire global brand recognition, an international and diversified customer base, a world class distribution network with global reach, more diversified product offerings, enhanced operational excellence and leading-edge technology.”


Mr. Yang added that the transaction will help establish Lenovo’s international name recognition by leveraging IBM’s powerful global brand through a five-year brand licensing agreement as well as through ownership of the globally-recognized “Think” family of trademarks.


Founded in 1984, Lenovo was the first company to introduce the home computer concept in the People’s Republic of China, and since 1997 has been the leading PC brand in China and across Asia with annual revenues of approximately US$3 billion. IBM’s PC business generated over US$9 billion in revenues in 2003 and offers a full range of desktop and notebook PC systems.


According to IDC figures for 2003, the combined unit market share of Lenovo and IBM’s PC businesses worldwide is approximately 8%. The transaction will dramatically strengthen Lenovo’s global presence in the fast-growing notebook PC marketplace.


As part of the strategic business alliance, IBM will provide marketing support and demand generation services for Lenovo products through IBM’s existing enterprise sales force of approximately 30,000 professionals, and through IBM.com. Lenovo products will also be sold through IBM PC specialists that will join Lenovo. IBM Global Financing and IBM Global Services, the number one IT services organization in the world with powerful existing enterprise channels, will be preferred providers to Lenovo for leasing and financing services, and for warranty and maintenance services, respectively.


“This is a winning transaction for customers of both companies,” Stephen M.
Ward, Jr., said. “Our two companies are a perfect fit sharing a common cultural commitment to innovation, customer service and shareholder value.
Looking forward, Lenovo will pursue an aggressive yet prudent growth strategy and will boast an industry leading international management team comprising IBM’s and Lenovo’s existing senior executives and technology managers. I have great confidence in the future of this new business.”


Lenovo Group will locate its PC business worldwide headquarters in New York, with principal operations in Beijing and Raleigh, North Carolina, and sales offices throughout the world.


Upon completion of the transaction, Lenovo will have approximately 19,000 employees. Approximately 10,000 current IBM employees --- more than 40% of whom already are in China and less than 25% of whom are in the United States --- will join Lenovo. The transaction is expected to have minimal impact in the aggregate on employment, benefits and compensation in either company.


Transaction Details


As consideration for the transaction, IBM will receive at least US$650 million in cash and up to US$600 million in Lenovo Group common stock, subject to a lock-up period expiring periodically over three years. IBM will be Lenovo’s second-largest shareholder, with an 18.9% interest in Lenovo. Additionally, Lenovo will assume approximately US$500 million of net balance sheet liabilities from IBM.


Lenovo will fund the cash portion of the consideration through internal cash and debt. The equity issuance price will be HK$2.675 per share, and is based on the closing price as of December 3, 2004.


The transaction is expected to be completed in the second quarter 2005 and requires the approval of Lenovo’s shareholders and review by relevant regulatory organizations. Lenovo Holdings, Lenovo Group’s controlling shareholder, has agreed to vote its shares in favor of the transaction. It is the intention of IBM and Lenovo to secure signed, local agreements after completion of additional legal requirements and industrial relations processes where applicable in some countries outside the United States.


The PC manufacturing portion of the International Information Products Company in Shenzhen, China, which is co-owned by IBM and Great Wall, is included in the transaction; IIPC’s IBM eServer xSeries manufacturing there is excluded.

IBM and Lenovo: General Q&A
Q1. What did you announce today?
An agreement that creates a powerful new competitor in the IT
industry.
Under the agreement Lenovo will acquire IBM’s PC business and the two
will form a broad marketing alliance. IBM will sell the products of
the new Lenovo through its global sales organization, and Lenovo PCs
will be integrated into IBM’s end-to-end solutions.
Once the agreement is finalized, this new Lenovo would employ roughly
19,000 people and deliver the widest range of personal computing
products and technologies to large enterprises, small- and
medium-sized businesses and consumers, worldwide.
Q2. What’s the significance of this agreement to the global PC market?
Separately, these companies possessed outstanding development,
manufacturing, marketing and customer care capabilities, with
targeted expertise in the enterprise (IBM) and consumer (Lenovo)
markets.
Those strengths will be leveraged by a new, growth-oriented global
enterprise that’s strategically focused on the PC space.
Lenovo’s heritage as China’s largest PC maker and its leadership in
that country’s fast-growing commercial desktop and consumer segments
position it well to pursue opportunities in emerging markets.
That’s especially true in China, which is the largest emerging
market.
Q3. Will people lose their jobs?
The two companies’ structures are highly complementary so we expect
the need for rebalancing to be minimal.
Additional details will be available as the transition progresses.
Q4. Exactly what moves from IBM to Lenovo under this agreement?
About 10,000 people will move from IBM to Lenovo.
All relevant tangible equipment and other resources used in IBM’s PC
business will also move from IBM to Lenovo.
Most of the IBM PC division’s physical work locations around the
world – the buildings themselves — are leased.
Q5. Who is Lenovo?
Lenovo, which is listed on the Hong Kong stock exchange, is one of
China’s largest companies.
Created in 1984, it was the first to introduce the home computer
concept in China. Since 1997 Lenovo has been the leading PC brand in
China and across Asia, with annual revenues of approximately $3
billion.
Lenovo is principally engaged in the manufacture and sale of branded
personal computers and handheld devices.
With this agreement, Lenovo achieves a size that would easily put it
into the top ranks of Fortune Magazine’s annual computer industry
listing.
Q6. When will the transaction be completed?
The agreement is expected to be finalized no later than the second
quarter of 2005.
It requires the approval of Lenovo shareholders, and there will also
be certain regulatory reviews.
Compliance with certain legal requirements and industrial relations
processes, and the signing of local agreements, are also necessary in
some countries.
Q7. Where will Lenovo be headquartered?
As a global business, the new Lenovo will be geographically
dispersed, with people and physical assets located worldwide.
Its worldwide headquarters will be in New York, with principal
operations in Beijing and Raleigh, N.C., sales offices in every
geography and research centers in China, the U.S. and Japan.
Q8. Who are the new company’s senior executives?
Yang Yuanqing – Chairman of the Board. (He’s currently CEO of
Lenovo.)
Steve Ward – Chief Executive Officer. (He’s currently IBM senior vice
president and general manager of IBM’s Personal Systems Group.)
Fran O’Sullivan – Chief Operating Officer. (She’s currently general
manager of IBM’s PC division.)
Mary Ma – Chief Financial Officer. (She’s currently CFO of Lenovo).
Q9. Will Lenovo’s products carry the IBM logo and established IBM branding, like the ThinkPad name?
The ThinkPad name is being transferred to the new Lenovo.
Initially, Lenovo will market products with both IBM and Lenovo
branding.
Over time, as the new Lenovo works to establish brand identity, its
product line will adopt the new company’s own, distinct branding.
The branding will change from IBM to Lenovo in phases over a
five-year period. (Current IBM branding for 18 months; IBM & Lenovo
co-branding in months 18-40; transition to unique Lenovo branding
with an IBM tagline describing our technical contribution for months
40-60.)
Q10. Why is IBM finally getting out of the PC business?
We don’t have to own or operate a PC company to provide PCs as part
of our end-to-end solutions.
This helps ensure that we’re positioned to give clients the most
advanced business PCs in the industry, through a company that’s
sharply focused on the PC space.
The new Lenovo will be much more competitive globally. We believe the
most promising growth path for the business includes both consumer
and enterprise products. IBM isn’t interested in re-entering the
consumer business, but Lenovo is committed to investing, growing and
winning in all segments of the PC industry.
Q11. How will your PC business be operated in the interim?
Until the deal closes next year, IBM will continue to generate and
book PC business as usual.
When the transaction is completed, the new Lenovo will continue to
operate under existing IBM terms and conditions that transfer with
IBM’s PC business.
All existing product roadmaps will remain intact for at least 18
months.
Lenovo will pay IBM a fee for marketing support and demand generation
services.
In addition, IBM expects to derive revenue from ongoing services
warranty work and customer financing support of Lenovo’s operations.
Q12. Will IBM still be the world’s biggest computer company?
Yes. Figures for 2004, while not yet final, will reinforce this
market position.
 
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