Video #24 - Hong Kong: Lenovo's Takeover of IBM's PC Business
Wednesday, January 11, 2006BACKGROUND INFORMATION
Lenovo Group Ltd. is China's largest computer making company. Founded in 1984, it introduced home computers to China, and by 1997 was the leading Personal Computer brand in China and across Asia, with revenues of US$3 billion. IBM's PC division, which offers desktop and notebook systems, generated over $9 billion in revenues in 2003. During that year, the two companies controlled 8% of the global PC market.
Lenovo's $1.25 billion purchase of IBM's PC division represents a tremendous challenge for the company, which now moves to the number three spot in worldwide sales. It also marks the retreat of the world's pioneer in the industry, IBM, which first offered PCs in 1981. However, as part of the deal, IBM will own 18.9% of Lenovo.
Lenovo's chief executive officer,Yang Yuanqing, is to become the chairman of Lenovo Group upon the retirement of chairman Lui Chuanzhi. IBM's Stephen M.Ward Jr., will be the new Lenovo CEO.
Experts claim that the sale allows IBM to focus on "higher-margin businesses such as computer services, software, more powerful server computers, and storage as well as computer chips." (Asia Times, February 2005) On the other hand, Lenovo will acquire IBM's "Think" trademark products such as the ThinkPad notebook and Think Center desktop line, and will be able to use the IBM brand on its computers for five years. Lenovo will also own IBM's interest in Great Wall Technology, which is China's second PC maker and its rival. Lenovo is expected to keep 10,000 IBM employees: 2,300 in the US and 7,700 elsewhere (mostly in China). It's expected revenue will approximate $12 billion with a volume of an estimated 11.9 million units -- a fourfold increase in Lenovo's business. Distribution will increase to 160 countries and will increase the company's leadership in China, which is considered the fastest growing IT market in the world.
Additionally, Lenovo and IBM will enter a broad-based, strategic alliance, with IBM serving as the preferred services and customer financing provider to Lenovo and Lenovo functioning as the preferred supplier of PCs to IBM. Lenovo is to re-incorporate in the United States and locate its headquarters in Armonk, NY. IBM will also help Lenovo in a number of other ways, such as having its sales force sell Lenovo PCs and providing customer support.
IBM has assured customers that they will notice very little change. According to John Spooner for c/net News: "IBM structured the agreement in such a way that while Lenovo will be in charge of manufacturing the PCs, IBM will continue selling, financing and servicing them." However, in an e-mail survey, many IBM customers reported concern about the future of their service provider, and Dell and Hewlett-Packard may try to take advantage of the change to attract current IBM customers.
Lenovo's current chairman, Chuanzhi Liu, 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."
SOURCES
Spooner, John G, "IMB-Lenovo deal clears potential block." c/net News.Com, January 10, 2005.
Spooner, John G. and Michael Kanellos, "IBM to customers: Expect business as usual." c/net News.Com, December 8, 2004. Thibodeau, Patrick and Carol Sliwa, "IBM PC Users Face Uncertain Future." PC WORLD, c/net News.Com, December 8, 2004.
"Lenovo's $1/25bn splurge on IBM." www.atimes.com
LESSON PLAN
GRADE LEVEL/SUBJECT:
10-12 grade Economics, International Relations, World History, Geography, International Baccalaureate Programs (IB), Current Events.
PURPOSE:
To present activities to be used in a variety of classroom situations in order to enhance student understanding of the Asian economy and its significance globally.
OBJECTIVES:
Students will be able to:
- Describe the history of Lenovo as a PC company in China.
- Describe the history of IBM.
- Evaluate the sale of IBM's PC section to Lenovo.
- Predict the effects of this sale on the future of both companies and the PC industry globally.
MATERIALS:
- Background information provided.
- Resources on China available at your school's Media Center and the Public Library System in your area.
- Background information available through Internet "search engines."
ACTIVITIES:
May be assigned as group activities or as individual tasks. They may also be designed as preparation for related presentations either by individuals or groups.
- Develop a timeline of events which illustrate the history of Lenovo in China.
- Develop a timeline of events which illustrate the history of IBM in the U.S. and worldwide.
- Use charts and graphs to depict the financial situation of both companies.
- Review the above information to write an editorial expressing your opinion on the effects of the sale on the PC industry and on both companies.
EVALUATION:
Individual assignments should be graded by the teacher using established criteria.
Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale: Content 1 = Superior (A) Creativity 2 = Excellent (B) Clarity 3 = Good (C) 4 = Fair (D) 5 = Poor (F)
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