Lenovo Acquisition of IBM PC Division: May 4, 2005 The Mandarin Goes Mainstream

IBM was the company that launched PC and even at the beginning of the decade to the majority of people PC meant IBM PC. All this changed on May 4, 2005 when the company that had launched the personal computer revolution into the office changed hand as Lenovo, previously a local Chinese computer manufacturer with no real global footprint, acquired IBMs PC division for $1.3 bn. The deal established Lenovo as a global player in the PC market and heralded the arrival of Chinese companies on the global scene.

As metaphor, it was an irresistible deal; the purchase of IBMs storied personal computing division by a Chinese company most Americans had never heard of. It could only signal the rise of the upstart and the demise of the establishment. Voracious Chinese entrepreneurs were banging on the door. An icon of corporate America was in foreign hands. Capitalism was being transformed. The reality was more mundane though as barring the initial hiccups that any deal of this magnitude goes through, things have never been too topsy turvy.

When Lenovo began to absorb the IBM division in 2005, both sides were acutely aware of the turmoil at HP after it bought rival Compaq in 2002; combined sales fell as the HP and Compaq brands cannibalized each other, and the divisions feuded internally. The new Lenovo faced geographic and cultural hurdles too. The Chinese company was based in Beijing, the IBM division in Raleigh, NC. And virtually none of the IBM-ers spoke Chinese. But Lenovo-IBM has some advantages that HP-Compaq didnt. The product lines, for one, are largely complementary; Lenovo-branded computers are dominant in China, with 35% of the market, while the Think computers have a strong worldwide presence with higher-margin corporate clients. Plus, the IBM-ers, instead of rejecting their new corporate parent, embraced Lenovo.