Posted on 12/07/2004 6:32:06 PM PST by Tumbleweed_Connection
China's biggest computer maker, Lenovo Group, said Wednesday it has acquired a majority stake in International Business Machines Corp.'s personal computer business for $1.25 billion, one of the biggest Chinese overseas acquisitions ever.
The deal shifts IBM to a peripheral role in a corner of the technology industry it pioneered.
It creates a joint venture in which Lenovo Group Ltd. takes over the IBM-brand personal computer business, including research and development and manufacturing, while IBM will keep an 18.5 percent stake in the company, said Lenovo's chairman, Liu Chuanzhi.
The deal makes Lenovo the third-largest PC company in the world, he said.
Like other major Chinese manufacturers hoping to expand overseas, Lenovo is planning to leverage a well-known foreign brand name. Liu said the company would be entitled to freely use IBM's brand name in five years' time.
IBM's computer unit had sales of nearly $13 billion over 12 months ended in September.
Lenovo, founded in 1984 by a group of scholars at the government-backed Chinese Academy of Sciences in Beijing, is China's biggest computer maker and is also the biggest in Asia. Its shares are traded in Hong Kong.
The announcement Wednesday followed reports that a deal was imminent. On Tuesday, Lenovo's Hong Kong unit confirmed it was in talks with a "major international company in the information technology business" but hadn't named the company, saying the negotiations were confidential.
"The bigger the baby, the more difficult the delivery," Liu quipped when asked about the delay in making a formal announcement.
With speculation about the impending deal mounting, IBM's stock fell $1.57 per share to $96.10 in Tuesday's trading on the New York Stock Exchange.
Both IBM and Lenovo have been grappling with the difficulties of turning a profit on PCs, a business that has suffered steep price declines over the past decade thanks to aggressive competition from Dell and upstarts such as eMachines Inc., which was acquired earlier this year by Gateway Inc.
Once a key player in popularizing the personal computer, IBM is now increasing its focus on consulting, outsourcing and software, analysts say.
Its PC business now accounts for a small portion of its total sales and profits, according to analysts. It ranks a distant third in terms of PC units sold, having surrendered the market lead by the late 1990s, according to the technology research firm Gartner Inc.
Globally, IBM sold 6.8 million PCs in the first nine months of 2004 for a 5 percent market share, Gartner said. That compares with 16.4 percent for Dell Inc. and 13.9 percent for Hewlett-Packard Inc., which makes both the HP and Compaq brands.
The companies expect that by combining operations, they'll be able to save money on manufacturing and expand their razor-thin profit margins.
Lenovo faces increased competition at home and in Asia from foreign companies such as Dell. The Beijing-based company, formerly known as Legend, had expanded into cell phone manufacturing and information technology services, with lackluster results. It now says it is focusing on its core computer business again.
IBM was not the first technology company to sell a computer small enough to sit on a desk or table. But it did popularize the idea of a "personal" computer for the mass market with the 1981 introduction of a desktop machine featuring a more user-friendly operating system, a software platform licensed from a then-fledgling company named Microsoft Corp.
IBM, based in Armonk, N.Y., has nearly 320,000 employees.
I've built machines for home use for a long time; nothing in mine comes from China. Processors from Malaysia, memory from Singapore, HDDs Singapore, you get the idea.
Somehow I very much doubt that Chinese-made computers will be acceptable for either the US government or defense contractors.
It doesn't appear that they will have any choice -- certainly if COTS is going to be the standard for procurement.
"If the thing gets damaged, no big deal, just buy another one."
You know, considering the way people and their property are treated at airports these days...you have a good point!
Does it make sense to buy a new $1,000 machine/laptop every three or four years?
Maybe they will have the jobs here for manufacturing.
It wasn't that long ago that IBM was one of the 5 largest employers in the United States.
I don't know what is more sickening.
The fact that now it's being sold off to the chicoms.
Or the fact that companies like IBM are no longer our biggest employers. In fact, the two biggest "private" employers in the US are Walmart and McDonalds.
Welcome to the New World Order.
Yes --- they must be showing up soon --- they'll proclaim how it's great --- like you said Americans don't need jobs, everyone can live off investments just as they themselves do -- and when you're living off your investments, it's good that prices get very cheap.
It's good when the dollar looses it's value because then we can't buy things from Europe --- only from China which is somehow much beter.
If they get made in China, we'll have to buy $500 machine/laptops every four months. Just like all that other cheap crap you find that's brought in.
ping
IBM isn't stupid. They sold a part of their company that was history. IBM will move on and continue to be successful. The Chinese will make money on the venture, but only by producing PC's at half the price of Compaq/HP. The Asians are copiers, and good copiers at that. In the West, we are the inventors. We invented the PC, perfected it, produced it, but now it's time to move on. This is way capitalism is working right now. Some people don't like it, but we are still on top. For now.
"Does it make sense to buy a new $1,000 machine/laptop every three or four years?"
Maybe not. Ive been known to buy refurbished stuff..with an extended warranty though. Most bang for the buck.
My desktop unit is a self made unit, and is due for an upgrade.
Right now I have a dual pentium 3 with 1G RAM and a SCSI RAID harddrive config.
Memory and SCSI RAID are more important for overall performance than clock speed...but thats off topic here..
You mean, Big Blue...is now Big Red? Not that the parts sourcing will change much.
You're not surprised by this, are you?!
Recycled Dell has worked out well for laptops...
I think that offshoring labor has some fascinating parallels with disruptive technologies. I wonder if China is the disruptive "technology", coming in to scoop up all the low-end, low margin markets, with American companies like IBM gratefully ceding their money-losing low-end product lines and concentrating on the higher-end, higher-margin lines for a higher rate of return.
If this is so, then it doesn't bode well in the long run for the US companies that get pushed into these niche markets by the upstart Chinese. But from the standpoint of the employees it's not necessarily the end of the world - if there are new, innovative US companies they can migrate to. These new US companies may themselves be working on disruptive technologies in the more classical sense.
Can the disruptive technology model be extended to countries or economies as a whole? I dunno. I suppose in the general sense that China is a country full of cheap labor and we're full of expensive, highly trained, productive, & creative labor. Does this mean we've been marginalizing ourselves as an economy as we pursued higher-margin market segments across the board? I dunno.
Anyway, Japan started out in China's position after WWII and ended up a relatively high-wage country after just a few decades. I don't hear too much anguish over Japan stealing American jobs these days.
One point some analyst made recently: China has little experience in managing a free economy. What's going to happen when they encounter the inevitable recession, currency crisis, or whatever? Chances are their government & central bank are not going to handle it well. Chances are they'll screw it up & create a depression for themselves. I wonder what kind of repercussions that would have (good or bad) for us when the inevitable happens. Hmmm...
They already are. Where have you been. Our politicians and corporations have sold out this nation for greenbacks and percentages on the stock market. In ten years, you'll be lucky if what's left of the US is a mere aggrarian culture of third world scale. It's the amazing side effect of cutting a hole in the bottom of a tub of water. The water exits while disturbing the entire volume within that has not yet exited.
Unless the hole is patched, the water flows out completely.
And as wages are far far cheaper than here in China, India and Mexico. We'll lose every job in the US to outsourcing and offshoring long before those countries run out of 3.00 a day slaves to replace us with. We have some 300 million people in this country. China has billions. Do the math. Common sense belies the propaganda of the other side.
Awesome post dude....I needed a laugh after reading this. ;)
China is finally rising from its slumber. It's buying all the oil, steel, and concrete it can get its hands on to build, build, build. It will be the only thing approaching superpower status to challenge US dominance. If our economies are intertwined, I would expect our relationship with China to be valued by the leaders of both countries. The odds of World War V will be lower - allowing us to finish WW IV (WOT) properly.
...for the next few years.
Maybe you don't know how to read PR statements, but examine VERY closely the Q&A with the IBM flak, and you'll find that in about 5 years the 'support' function will be largely new employees.
Granted, they will be working in the USA.
But Research Triangle employees? They are history.
Wanna start subtracting "US-based jobs"?
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