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Agenda

 Introduction
 IBM: Why Lenovo
 Lenovo: Why IBM
 Trade Barriers
 Agreement Terms
Conclusion: Our Take
 Perfect Fit
 Strategic Alliance
The New Lenovo
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 IBM Personal Computing
Division
• Established in 1981, creator of
personal computer
• $9Bn 2003 revenue; 10,000
employees in PCD and supporting
operations
• #2 in WW commercial notebooks
revenue
• Undisputed leader in enterprise PC
design, business productivity, and
lowest total cost of ownership
• Enterprise and Mid-market strength
(15% share total client)
• Client, notebook and SMB double-
digit growth, outpacing industry
• ThinkPad notebooks have won over
1,000 industry awards
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 Lenovo Group LTD
• Founded 1984
• FY04: Revenue, $3B; Net Profit,
$135M
• Approx. 9,000 employees
Commercial
• #1 market share in China for Home Products Products
seven years • Desktops
• Desktop PCs
(27% market share, source: IDC) • Tianyi notebooks • Soleil notebooks
• Scanners
• #1 PC company in Asia Pacific • Xuri notebooks
• Laser printers
(excl. Japan) • Inkjet printers

• #1 IT company in China Cell Phones

• Mobile
• Small Business and Consumer Servers
handsets
market strength • 886 Servers
• Creator of
• Market capitalization: approx. Deepcomp 6800
$2.6B supercomputer

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 Why IBM wants to sell PC
Business
 IBM's strength historically has been
reinventing itself.

 IBM benefits from the deal by :

– Getting rid of a business -- PCs -- that
defined the company in the 1980s, but
later became a drag on profit margins.
– During first 3Qs of 2004 it earned
margins of only 0.75% (US$1Bn loss
from 2001)
– Over the past decade, IBM has
transformed itself into a services and
software company, and set its sights
clearly on China as a potentially huge
market.
– It has shed disk drives, displays,
desktop manufacturing and network
processor businesses while adding
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services companies.
 IBM : Why Lenovo?
 What Lenovo has
– 27% share of China PC market in 2003
– Massive nationwide network of
distributions in the last two decades
 Alliance might accomplish “lower price +
higher efficiency”
– Lenovo’s labour price is only $3 per
desktop PC and this will save IBM’s
operating expense to less than 9% of
revenues.
– Lenovo staff’s working efficiency is high
because of exterior environment, such as
“the open door policy” and current social
welfare.
 Alliance might get rid of a dilemma
– During a long time, PC Unit of IBM hasn’t
been a good performer.
– In Lenovo, PC has been its “Fist Product”
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since its establishment in 1984.
 Lenovo: Why IBM?
 Internationalization
– Obtain a strong helper IBM in the global market - IBM’s 30,000-person
sales team and global network of 9,000 business partners will help sell
new Lenovo PCs
– IBM’s 19% of the stakes of new Lenovo will guarantee the common
interests.
– After merger, new Lenovo will be permitted to use IBM’s global trademark
ThinkPad for 5 years-- building customers’ affection

 Improvement of R&D and setting an example of a lawful player

– Lenovo focuses on long-term interests in technology transfer by being a
respectful and rational player
– Through merger with IBM, new Lenovo obtained over 1,000 granted
patents( in 1996, Lenovo only had one granted patent)
 
 Management of International Experience
– The management of IP is a foreign concept for Chinese people
7 – Merger with IBM will quickly infuse new Lenovo with stronger
 Trade Barriers
 Security Issues:
– US suspected Industrial
Espionage

 Share Holder Approvals

– Lenovo shareholder approval
was needed

 Location of the headquarters

– As per US federal laws IBM-
Lenovo headquarters to be in
US.

 Cultural Issues

 Employee resentment
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– Uncertainty about jobs and
 Agreement: Terms and
Conditions
 Deal agreed at: US$ 1.25 billion.
 Duration of the service agreement: 5 years

 Lenovo to IBM:
– Lenovo pays US$1.25 billion
– US$650 million in cash and rest in shares.
– Approximately 18.9% stake in Lenovo.
– Lenovo becomes preferred PC supplier to IBM

 IBM to Lenovo:
– Tangible assets related to PC business to Lenovo
– All IPRs related to PC business to Lenovo
– All financial receivables to Lenovo.
– IBM becomes the preferred service and financing provider to Lenovo
– Exclusive access of IBM logo and the brand “ThinkPad”.
– Provides a broad range of transition services to the Lenovo Group to assist
in conducting the Business
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 Our Take on the deal
•Objectives were crystal
clear
•Tradable were well
defined.
•Risks on other product of
IBM due to Lenovo.
•Lost a part of US market
due to security issues.
•Overall win-win
negotiation
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 A Perfect Fit between Complementary
Organizations

• Premium Global PC Brand • #1 IT Brand in China

– Most recognized technology – Most recognized technology
brand globally brand in China

• Enterprise / Mid-Market • Consumer / Small Business

Expertise Expertise
– Leader in business productivity – Differentiated consumer/small
and lowest total cost of business and extensive retail
ownership network

• Notebook Leader • Efficient Operational Platform

– Leading technology enhanced – Low cost infrastructure and
notebook product• offering manufacturing scale
Global Sales, Financing,
Fulfillment and Service
Network
– Global sales network with
financing, fulfillment and
service support
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 IBM and Lenovo
Long-term Strategic Alliance
Created Powerful Global Leader

Leading Products
and Brands
World Class Service
& Support
Global Reach
New Growth
Opportunities
Scale
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 The New Lenovo: Overview

• $13B sales (last 12 months)

• 19,000 employees

• WW Headquarters: New York,

USA
• Principal operations: Raleigh,
Beijing
• Public company with ownership
positions by Lenovo and IBM
• Est. combined share data: 34%
in China

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 Thank You
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