Lenovo's Acquisition of IBM's PC Business: Uncertainty in the Enterprise Market

Strategic Insights -

Lenovo, the largest information technology company in mainland China, has acquired IBM's computer business for $1.75 billion, sparking concerns that the company may struggle to retain IBM's core enterprise business. The uncertainty surrounding the deal has already prompted corporations to consider alternative PC suppliers, such as Dell and Hewlett-Packard. As Lenovo faces pitched battles in over 160 countries, it must work to unify its cultural legacies and target specific markets carefully to achieve growth.

Key Takeaways:

  • The acquisition has created big market share opportunities for Dell and HP, with 91% of enterprises in the US citing these companies as their primary PC suppliers.
  • Lenovo will need to work hard to retain IBM's core enterprise business, particularly in the area of enterprise notebooks, where loyalty to IBM is high.
  • Competitors will feel pressure from Lenovo's cost structure, which can compete with Dell's, making it harder for them to crack the Chinese market.
  • Sun Microsystems sees an opportunity to sell its Java desktop system to Lenovo, a low-cost, open-source alternative to the ubiquitous Windows platform.
  • The change in the computer industry, with a shift from hardware features to services, has created a new market advantage for networked computing proponents like Sun.
  • The Lenovo-IBM deal signifies a change in the industry, with a focus on individual users and buyers, rather than traditional enterprise sales.
  • Michael Dell has cast doubts on the success of the merger, citing the poor track record of mergers in the computer industry.
  • Lenovo's competitors will need to consider the implications of the deal, including the impact on their own cost structure and market share.

Statistics:

  • Lenovo will pay $1.75 billion for IBM's computer business.
  • Citigroup Smith Barney estimates that the combined entity is likely to lose sales, valuing the acquisition at $1.5 billion below market price.
  • 48% of prospective IBM customers considered buying PCs from a vendor other than IBM before the deal was announced.
  • On a unit basis, Forrester data suggests that Dell and HP will split any potential IBM defectors evenly.
  • 171 prospective IBM customers were surveyed by Forrester.
  • Lenovo's acquisition of IBM's PC business has fueled talk of more ambitious expansion plans by Chinese firms through mergers and acquisitions.

Sources:

  • Forrester Research
  • Citigroup Smith Barney
  • Gartner Research
  • Sun Microsystems
  • Oracle chairman Jeff Henley
  • Kingdee International Software Group's Toa Charm
  • Microsoft (for context on Windows market share)
  • ComputerWorld Magazine
  • The New York Times