Reconsidering the sale of IBM

Earlier this year, I expressed misgivings about the sale of IBM’s PC division to China-based Lenovo Group. While I thought IBM was smart for unloading its unprofitable PC group, I also thought ThinkPad and ThinkCentre customers would get the raw end of the deal.

However, I recently spent an intense day talking with Lenovo’s senior executives, and they have allayed my fears. In fact, these discussions have given me a positive outlook on Lenovo’s worldwide role in the PC market. Of course, it’s just barely three months since the sale closed, so time will tell if Lenovo can pull off its grand plans.

Initially, I had three concerns about the sale: 1) the inevitable loss of innovation if Lenovo curtails the funding of R&D to which PCD was accustomed; 2) The fear that Lenovo might focus simply on cost cutting in order to stay competitive, resulting in a loss of corporate customers outside of China; and 3) a potential “brain drain” if former IBMers refuse to don a Lenovo badge. Lenovo addressed each of my fears with a very palatable response.

Let’s discuss the easy issue first — the potential brain drain. Before his appointment as Lenovo president and CEO, Steve Ward headed PCD. He had the dubious distinction of telling thousands of his fellow IBM employees that their division had been sold and explaining the rationale for the sale. Ward expected a backlash; instead, he received applause and cheers.

Ward attributes the unexpected reaction to the employees’ passion for the PC. In recent years, IBM did its best to stifle that passion by de-emphasizing PCs and making PCD feel like the unwanted stepchild. Lenovo’s adoption of this stepchild meant that PCD would gain a prominent position in a growing company focused on the PC platform. PCD employees could feel like rock stars instead of back-up singers in their new company. Ward says that less than a handful of employees declined the offer to trade an IBM badge for a Lenovo badge. So much for the brain drain.

Next, let’s look at the R&D angle of the acquisition. I’ve always considered IBM’s Think PCs to be high on the innovation scale. The built-in ThinkVantage technologies are truly valuable features that make the PC easier to use and maintain than commodity brands of PCs. Lenovo thinks so, too. That’s why the ThinkVantage technologies will live on and grow under Lenovo. Peter Hortensius, former IBM employee and current senior vice-president of worldwide product development for Lenovo, told me PCD and Lenovo have a similar approach to developing meaningful technology to solve real users’ problems. Hortensius and George He, Lenovo senior vice president of research and technology, pledge to continue to drive innovation that will make PCs easier and more cost effective to use — for both consumers and business customers.

So what about the cost issue? Yes, Ward says, Lenovo is going to be relentless in cutting costs from its PCs, but will do so through efficiencies and not by cutting R&D or product quality, as I had feared. The company can improve its manufacturing efficiencies by having plants in China, where most of the component pieces are made. This will eliminate shipping of components before assembly. Ward believes Lenovo business PCs can be priced competitively to those of Dell and HP, without sacrificing features or quality.

Lenovo has already developed its sales models to accommodate the vastly different needs of consumer and business customers, and products will rally around these models. The traditional Lenovo PC products are aimed at consumers (outside the U.S.) and sold through a high-volume “transaction” model, which includes Internet and retail sales. The Think brand of business products will be sold through relationships — either direct or through resellers. What’s more, IBM will continue to offer these products through a long-term sales relationship with Lenovo. So if you’ve been buying your PC products from IBM over the years, nothing has to change.

I always thought the economics of this sale made sense. Now I’ve come around to thinking that freeing PCD from the clutches of IBM might be good for the PC market, as well as for Lenovo.

QuickLink: 056898

–Musthaler is vice-president of Currid & Company, a Houston-based technology assessment firm. She can be reached at [email protected].

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