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For IBM and Lenovo Group Ltd., their deal to merge their PC businesses will result in some big changes for both companies, and officials for both expect those results to be positive.
However, users of IBM notebooks and desktop PCs say this deal will only be a success if nothing changes for them.
After several days of speculation, IBM and China-based Lenovo announced Tuesday night that they were combining their two PC businesses to create a larger company with annual revenues reaching about $12 billion, making it the third-largest PC vendor in the world, behind Dell Inc. and Hewlett-Packard Co. Lenovo is buying IBMs Personal Computing Division for about $1.75 billion.
The new Lenovo will take control of IBMs ThinkPad notebooks, ThinkCentre desktops and ThinkVantage technologies. However, IBM will be moving 10,000 people—from researchers to sales people to executives—over to the new company, and Stephen Ward, currently vice president and general manager for IBMs PC group, will become CEO. Current Lenovo CEO Yang Yuanqing will be president.
Overall, for IBM customers, few things will change, said Deepak Advani, vice president of strategy and marketing for IBMs PC division. IBM will continue to sell, service, support and develop the products. In addition, the product names will remain the same, and the IBM label will stay on the boxes for at least five years.
“Customer service will continue to be part of our core tenants,” said Advani, who will become chief marketing officer for the new Lenovo, after the deal is completed in the second quarter of 2005. “ThinkPad is a franchise. ThinkPad is a phenomenon. Why would anyone tinker with something that has an almost cult-like following?”
User reaction to the deal has been positive, although the message theyve been giving to IBM is that they dont want anything to change with the products. Shawn Nunley, director of technology development for NetScaler Inc., said that given the way the deal is structured, he doesnt think there will be much difference, at least for the first five years.
“I dont expect any real substantial changes in our buying habits, unless something changes on the ThinkPad end” said Nunley, whose company buys hundreds of ThinkPads every year. “Its an innovative technology, and I really appreciate that. And from what I understand, that wont change.”
He is hoping that the new company will be able to more efficiently manufacture the products, and that any cost savings will trickle down to the customers.
John Lally, director of product management at Interland Inc., said he agreed with IBMs decision to get out of the PC business—the company didnt have the capacity to compete with the likes of Dell and HP. However, it will take time to see if it impacts users.
“Its hard to say,” said Lally, in Atlanta. “I dont have a strong background working with any Chinese manufacturing companies. As a customer of IBMs, I really expect a certain level of high quality [in the products]. … I have to consider if [moving the business] to a Chinese manufacturing company will diminish that quality. At first blush, Id say no.”
Roger Kay, an analyst with research firm IDC, in Framingham, Mass., said for IBM, there are few negatives to the deal. IBM gets rid of an underperforming division while continuing to keep its brand on the products and its hands in the business, Kay said. The short-term challenge will be to keep customers calm, particularly as competitors such as Dell and HP court their customers.
“The real challenge is for Lenovo,” Kay said. “Now they have to make the division profitable, because if it was that great a division, IBM wouldnt have gotten rid of it.”
IBMs Advani said that for both IBM and Lenovo, the potential rewards are worth the risks. IBM gains greater access to the growing Chinese market—the new company will have 34 percent of the PC business in a country that is seeing growth seven times faster than in the United States—and will be able to continue supplying everything from sales to service to financing. In addition, Lenovo, with its focus on the small-business and consumer segments, will complement IBMs expertise in the high-end and midrange, he said.