Lenovo's Acquisition of Ibm

Topics: Personal computer, Compaq, Strategic management Pages: 18 (5896 words) Published: February 5, 2011
Table of Contents

2.The Parties Involved2
2.1The Acquirer: Lenovo2
2.2The Target: IBM2
3.The Acquisition2
3.1Development of Acquisition (Time Line)2
3.2Facts of Acquisition2
3.3Expected Problems from Acquisition2
3.4Underlying motivations/expectations for Lenovo’s Management2 3.5Underlying motivations/ expectations for IBM’s Management2 4.Were Lenovo’s expectations met?2
4.1To become an international company with access to the global PC market2 4.2Aim to leverage IBM brand to gain marketplace traction2 4.3To leverage on acquired IBM’s management expertise2
4.4To achieve more cost-savings by tapping on IBM’s efficient supply-chain, sales and distribution network2 4.5Overall Assessment on whether Lenovo’s expectations were met2 5.Were IBM’s expectations met?2

5.1To concentrate on IBM’s core products through the removal of the PC unit2 5.2To build its brand name in the booming Asian Market2
5.3Overall Assessment of whether IBM’s expectations were met2 6. Comparison study: Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq) Merger2 6.1Analysis of the success of Lenovo IBM merger vs. failure of HP-Compaq merger2 7. Conclusion2

8.Going Forward2

1. Introduction

On 1st May 2005, Lenovo acquired IBM’s Personal computing unit (IBM PC) for $1.75 billion. This was seen as a major milestone for Lenovo in its efforts to globalize its operations according to industry analysts. With this acquisition, the goal of its ambitious founder, Liu Chuanzhi, to create a global PC manufacturing powerhouse was achieved. This paper seeks to evaluate the success of the acquisition by focusing on whether the underlying motivations for both Lenovo’s and IBM’s management for entering the acquisition were met. While there were many risks involved, the rationale for the acquisition was sound, with the major players all positioned to benefit: Lenovo increased its global reach and scale; and IBM could focus on its core operations and increase its brand name in the booming Asian market. 2. The Parties Involved

2.1 The Acquirer: Lenovo
Lenovo (the acquirer), formerly known as Legend, was founded in 1984 as a distributor of IT products. In 1990, Legend changed its role as an agent for imported computer products into that of a producer and seller of its own branded computer products. In 2003, Legend announced the birth of its new “Lenovo” logo to prepare for expansion into the overseas market.

Lenovo has a strong client base and sales infrastructure in the Chinese market with 27% market share. The greatest strength of Lenovo is its low manufacturing costs with labor cost as low as $3 per desktop PC. This has helped drive the company’s operating expenses to less than 9% of its revenues which is half the average for the computer hardware business and also similar to the then PC market leader, Dell Inc.

With R&D as one of its strengths, Lenovo constantly introduced radical innovations into the market, such as the first mini notebook which weighed less than 3 pounds. During 2002, Legend made plans to sell PCs globally. It even opened a Silicon Valley office and started selling laptops in Spain under its QDI brand. However, it was defeated by strong competition from multinational PC makers such as Dell, whose presence have grown rapidly in China. Lenovo lacked global reach and scale, which constrained its ability to outshine its competitors.

We have used a SWOT analysis to assess the positioning of the company as shown below: Fig. 1

2.2 The Target: IBM
IBM (the target) is a well-established information technology company incorporated in 1911 and operates in 160 countries across the globe. It owns a strong brand name – “ThinkPad” in the laptop market. Its operations fall under five segments, namely Global Technology Services segment (GTS), Global Business services (GBS), Software Segment, System...

Bibliography: 1. (9 May 2005) Lenovo and IBM: East Meets West, Big-Time. The Business Week. Retrieved from: http://www.businessweek.com/magazine/content/05_19/b3932113_mz063.htm
3. (2 May 2005) Lenovo completes acquisition of IBM’s PC unit. Computer World. Retrieved from http://www.computerworld.com/s/article/101490/Lenovo_completes_acquisition_of_IBM_s_PC_unit

4. (2 May 2005) China’s Lenovo Takes Over IBM PCs. Datamation, Retrieved from http://itmanagement.earthweb.com/erp/article.php/3501726/Chinas-Lenovo-Takes-Over-IBM-PCs.htm
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8. (24 December 2004) Uphill Task for Lenovo, Asia Times Online. Retrieved from: http://www.atimes.com/atimes/China/FL24Ad05.html
10. (1 May 2005) Lenovo Completes Acquisition of IBM’s Personal Computing Division, IBM Press Release. Retrieved from: http://www-03.ibm.com/press/us/en/pressrelease/7641.wss
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