View Full Version : China's Lenovo builds on IBM PC purchase

12 Sep 05,, 20:11


Monday, September 12, 2005 Page B3

When Chinese computer giant Lenovo Group Ltd. launched its takeover of IBM's personal computer unit in April, the scrutiny of U.S. law makers was so intense it went beyond being an annoyance to the company and actually proved beneficial.

"They grilled us," said Lenovo president and CEO Steve Ward. "But what happened was there were all these leaders who were so interested in how our company works. It actually turned out to be a competitive advantage."

In an interview during a stop in Canada to meet customers, Mr. Ward showed off the first offspring of the new international marriage: the ThinkPad Tablet notebook.

"Soon you'll be taking notes on one of these," he told a reporter.


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What may be more impressive than Lenovo's new product, however, is that the $1.75-billion (U.S.) IBM PC unit acquisition took place at all. In a year that has seen several acquisition-hungry Chinese companies turned away at the U.S. border, Lenovo is a rarity: a Chinese firm that has managed to snatch an American asset.

"In foreign investment, be it in the U.S. or EU or wherever, the first few deals are always difficult," Mr. Ward said.

Lenovo has good reason to hope future acquisitions are simpler to undertake. The company is now the third-largest PC maker behind Dell Inc. and Hewlett-Packard Co. Its plan for overtaking its two rivals is dependent not only on product innovation, but also on investments in emerging markets. Right now, the company has its eyes set on India, Brazil and Russia, among other countries, and the early success of the IBM merger has only emboldened Lenovo's drive for growth.

In its first financial report since buying the business, Lenovo said in August that first-quarter profit rose 6 per cent. Revenue more than tripled in the quarter to $19.6-billion from $5.88-billion, falling just short of Lenovo's prediction that sales would quadruple. The IBM PC unit, which had been losing money since 2001, was now profitable, the company declared at the time.

Mr. Ward said sales among Lenovo's top 400 customers -- a list that includes Coca-Cola Co., Intel Corp. and Harvard Business School -- rose after the IBM PC unit purchase.

"For us, it was purely a growth acquisition," he said.

But even as it expands beyond its traditional Chinese market, Lenovo is working to cut costs just as aggressively, and trying to pass those savings on to customers.

Mr. Ward said studies have shown more than 82 per cent of a computer's cost is incurred after it is purchased, an amount that totals about $5,000 over three years.

"We've managed to shave $3,000 off that amount," he said, pointing to innovations in the firm's laptops, such as an internal airbag that reduces the risk of hard drive failure if a notebook is dropped. "It doesn't sound like much," Mr. Ward said, "but Intel has said this is worth $6-million over three years to them."