China and India: The Big Squeeze On U.S. Technology
The New York Times (and eWeek) had a story on Saturday about a Chinese technology company interested in buying Seagate Technology. The unidentified company set off a round of fears that Chinese purchasing a hard drive company might endanger U.S. security interests by giving it undue access to both encryption technologies and manufacturing technologies. I think the issue is broader than that.
Lenovo (built from the IBM desktop and laptop business), 3Com (which through an acquisition of a joint venture with Huawei Technologies has a substantial position and resources in China) and now maybe a Seagate Technology acquisition represents a substantial shift in the hardware environment. All that is left is a purchase of a major chip vendor (AMD?) or a state funded startup and computer, networking, storage and semiconductor design, development and sales becomes Asian rather than U.S. in character.
In his latest Early Indications newsletter (the letter is privately distributed but you can email him for a copy), John Jordan notes, "The final step up the margin ladder is for a manufacturer to design, make, and label its own offerings for market, as an Original Brand Manufacturer (OBM). Brand is in fact a major story at Lenovo, formerly the Chinese Legend PC firm, which bought the IBM business in 2005. The company's marketing is focusing heavily on sporting events, with Olympic sponsorship at both the Turin and Beijing games. Lenovo's story is fascinating: the CEO, Bill Amelio, is an American with a Karate black belt hired away from Dell, while the chairman, Yang Yuanqing, is Chinese. The company's ownership is split among public shareholders (35%), the state-run Chinese Academy of Sciences (the original investor in Legend at 27%), employees, IBM, and private equity firms. Lenovo sells in 66 countries and recently announced plans to open factories in India and Mexico, the better to shorten supply chains and thus accelerate inventory flow."
So, on one side of the world you have a huge, growing economy with (what?) about a trillion U.S. dollars to spend getting ever more acquisitive in the hardware business. Meanwhile, on the other side of the world in India (and don't forget Russia) you have a burgeoning software design, development and production business. In the middle sits a complacent U.S. which may soon be wondering what is left after hardware and software have left its shores.