IBM-Lenovo: Merged To Succeed

This mammoth merger was received critically. Now IBM will be the preferred
services and customer financing provider to Lenovo, while the latter will be the
preferred supplier of PCs to IBM. It will also have to live to the image that
IBM has built over the years and at the same time sustain itself against other
Oriental vendors, who are increasingly trying to venture in USA and Europe.

The IBM-Lenovo merger created waves in the IT industry. It was received with
much speculation from various industry big-wigs, and market segments. With the
deal being closed, the combined entity headquartered in Purchase, New York is
all set to focus on its strengths in quality, service and innovation in
technology. As the Chinese PC maker moves ahead, a key for Lenovo would be to
maintain sharp focus on the product quality and channel service and support that
characterized IBM's PC business.

It is of immense importance for IBM to understand that its existing customers
will be loyal to IBM and Lenovo as long as they don't drop the ball and they
are committed to the channel, in terms of maintaining their support and
programs.

What the deal really means?

IBM's deal to sell its PC business to Chinese computer maker, Lenovo Group
for $1.75 billion would mean a lot of changes for both the companies. Officials
on both sides expect these results to be positive. However, users of IBM desktop
PCs and notebooks opine that this deal will only succeed if nothing changes for
them.

The recent completion of the deal between IBM and Lenovo presents a number of
new opportunities for the new Lenovo. But the combined entity will have to work
hard towards proving that the change represents real benefits for its existing
and potential customers!

IBM-Lenovo as a combined entity will start shipping both new Lenovo and
ThinkPad products within weeks - in part to show that the merger has not
distracted it from further innovation. Lenovo is studying how to market its
various brands, especially consumer products, in new markets outside of China.

What's in for India

"Business continuity and product leadership in the Indian region is our
mantra for this region. In the coming months, we would create a high performance
culture to deliver Lenovo's commitment to customers," asserted, Neeraj
Sharma, MD, South Asia, Lenovo.

If we look at this deal from a global perspective, the idea is to be
competent in the market by achieving operational efficiencies. "With the
help of this merger, we would be able to achieve operational efficiencies.
Product innovation is key for us. When it comes to our existing brands like 'Think
series',

we would further innovate on the technological front," he explained.

On the manufacturing side, the company would fuel its Indian requirements
from its existing manufacturing unit based in Pondicherry. As far as channel is
concerned, nothing much will change, as the company will continue to interact
with them the usual way. Almost all IBM products will continue to evolve
according to their original roadmaps.

"All our brands have a planned roadmap and that will be followed by the
company. Thus, this merger would not create any changes for ThinkPad or
ThinkCenter series. Our core strategy would be to introduce the company to our
customers and channel in the coming next two months," explained, Vivek
Malhotra, Director, Sales & Channels, South Asia, Lenovo.

"We are a partner-focused company and would continue to work very
closely with them in the future. Whether it is a systems integrator or a value
added reseller, we would make sure that business continuity remains," Vivek
commented.

The agreement also insists on support of IBM ThinkPad and IBM ThinkCentre
brand product lines. Both companies have charted out the product development and
roll-out map for the next 18 months. IBM India has said that it would continue
to support channel partners.

Global perspective

With IBM taking an 18.9% stake in Lenovo, it has become its second largest
shareholder. The deal is likely to quadruple Lenovo's personal computing
business. And it will be a partnership — meaning that IBM will be the
preferred services and customer financing provider to Lenovo, while the Chinese

company will be the preferred supplier of PCs to IBM.

With IBM's global presence, Lenovo Group has already moved its PC business
worldwide headquarters to New York and has added some 10,000 IBM employees-about
40 per cent of whom are already in China.

Manufacturing
of IBM-branded desktop and laptop products will continue. However, over the next
five years, the brands on those products will be phased out in an orderly
fashion.

Existing customers would need reassurance that R&D would continue with
Lenovo before they invest in them in the near future. Even loyal IBM customers
would need assurance that existing systems would continue to be supported as
usual.

IBM's strength lay in the mid-market, enterprise and notebook markets and
Lenovo's in the consumer and SMB spheres. "It is a merger of synergies
between two companies, rather than an overlap. We have good relationships in the
retail sector and can leverage those products with the resellers we already
have," said Vivek.

On the channel front, IBM has had strong incentive programs. A lot of
resellers are looking forward to continue under Lenovo. It gives IBM another
reason to be more than careful in completing the transition to Lenovo in a
channel-friendly way.  

The driving logic behind this deal is that China can deliver goods and it
would help towards keeping down the costs of PCs. Though, it is unclear whether
this reduction in cost factor will be passed onto the end customer or not.

The combined $13 billion-in-revenue-a-year company brings together Lenovo,
which sells nearly one-third of branded PCs in China, with IBM, whose ThinkPad
brand is popular with business users globally, forming the world's third
largest PC maker.

Lenovo in the big league

With help of this multi billion dollar deal — the erstwhile Chinese
company has already catapulted itself into a cut-throat competitive world with
Dell Inc and Hewlett-Packard as rivals.

More importantly, Lenovo must face off against a host of established Japanese
names and Taiwanese rivals that are beginning to get dangerously global and
expanding into North American, European and other markets.

Lenovo has opted for an expansion strategy, in which it is, in principle,
partnering with IBM to move overseas. This Sino-American approach differs from
the approaches taken by other companies, especially in regions like Taiwan.

Other major PC manufacturers from Taiwan, such as Asustek and BenQ have been
making selective moves into the US and other markets. Greater China, including
Taiwan, supplies almost everything to everyone in the PC industry.

However, on the branded side, it has not tasted global success so far. With
IBM's global name being tagged with Lenovo, China's branded product story
may change on the global front.

ZIA ASKARI