Sale of I.B.M. PC Unit Is a Bridge Between Cultures
By STEVE LOHR
Published: December 8, 2004
I.B.M. announced late yesterday the sale of its personal computer business to Lenovo, China's largest personal computer maker, a deal that reflects the industrial and economic ambitions of not only the two companies but also their two nations.
Under Lenovo's ownership, the I.B.M. personal computer business will continue to be based in the United States and run by its current management team. I.B.M. will take a stake of 18.9 percent in Lenovo, which is based in Beijing but plans to have headquarters in New York.
The significance of the deal may exceed the relatively modest amount that Lenovo is paying: a total of $1.75 billion in cash, stock and debt.
The transaction - The Times reported late last week that I.B.M. had put its PC business up for sale - points to the rising global aspirations of corporate China as it strives to become a trusted supplier to Western companies and consumers. The sale also signals a recognition by I.B.M., the prototypical American multinational, that its own future lies even farther up the economic ladder, in technology services and consulting, in software and in the larger computers that power corporate networks and the Internet. All are businesses far more profitable for I.B.M. than its personal computer unit.
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But the move signals an acknowledgment by I.B.M. that its future in China may be best served by a close partnership with a local market leader - particularly one, as in Lenovo's case, that is partly owned by the Chinese government. The chief executive of Lenovo will be Stephen M. Ward Jr., currently an I.B.M. senior vice president in charge of the PC business. Lenovo's current chief and president, Yang Yuanqing, will become Lenovo's chairman.
American companies, in one industry after another, are scrambling to take advantage of the vast potential of the Chinese market. Chinese companies like Lenovo, meanwhile, are increasingly seeking to tap into overseas markets, management expertise and technological skills.
"This is an encouraging sign of the increasingly sophisticated trans-Pacific ties between the United States and China," said Timothy F. Bresnahan, an economist at Stanford University. "Seeing the Chinese seeking these kinds of economic links can only be a good thing."
The complex transaction is meant to serve as a bridge between very different companies from different cultures, by seeking to ensure that I.B.M. has a stake in the Chinese company's success. Whether in the United States, in China or anywhere else in the world, such a stake would be in I.B.M.'s self-interest; a messy exit from the personal computer industry could rankle corporate customers, hurting I.B.M.'s other businesses, and tarnish its stellar brand name.
I.B.M. has agreed to hold onto its stake in Lenovo for three years, the companies said, with an option of extending it. I.B.M.'s financial commitment to Lenovo could help open doors for its efforts to win other business in China.
The senior management of the current I.B.M. personal computer business will join the Chinese company, led by Mr. Ward and Fran O'Sullivan, the general manager of I.B.M.'s personal computer division.
Besides management expertise, Lenovo would be acquiring five-year brand-licensing rights to a computer business best known for its I.B.M. Thinkpad notebooks, its sleek black desktops and the product line's distinctive tricolor I.B.M. logo.
While Lenovo will have its headquarters in New York, the hub of the I.B.M. PC business is in Raleigh, N.C., where its design and development operations are based. I.B.M. employs about 10,000 people worldwide in its PC business, although fewer than a quarter of those workers are in the United States. In fact, 40 percent already work in China.
Under the agreement, I.B.M. will continue to handle technical support, financing and warranty coverage globally for its former personal computer division. Those tend to be steady and profitable cash-generating businesses, even as the PC business itself has been only intermittently profitable for I.B.M. lately.
It was I.B.M. that moved the personal computer industry from a hobbyist market into the corporate and consumer mainstream with its first PC in 1981. But as the company lost its PC market leadership to nimbler players, the company has pulled back its commitment to the business, first by getting out of retail sales and, in 2002, passing off its desktop PC manufacturing to a Silicon Valley contractor, Sanmina-SCI.
Today, I.B.M. is a distant third in worldwide PC market share, behind Dell and Hewlett-Packard. I.B.M.'s personal computer sales are about $10 billion a year, or about 11 percent of its $89 billion in revenue, but it has hovered between slight profits and losses in recent years.
In its hasty entry into the PC business in the early 1980's, I.B.M. made what turned out to be a strategic mistake: it chose outside suppliers for the crucial technologies of the microprocessor and the software operating system, helping Intel and Microsoft become two of the most profitable companies in the world.
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