Sun, Dec 05, 2004 - Page 11 News List

Lenovo eager to gain control of IBM brand

UNKNOWN GIANT China's largest personal computer maker is no longer content to be known as the world's cheapest PC supplier, it also wants to be the biggest


Although virtually unknown in the US, Lenovo -- said to be in talks to buy IBM's personal computer business -- is China's largest PC maker and the world's fastest growing one. And it is emblematic of the ambitions of emergent Chinese industrial giants to create global brand names and capture market share beyond their own borders.

Formerly relegated to a low profile as the cheap assemblers for the rest of the industrialized world, Chinese companies now have their sights set on becoming global powers in their own right.

The Lenovo Group, partly owned by the Chinese government, had sales of over US$3 billion last year and is currently ranked eighth globally among PC makers. It is the overall leader in Asia outside Japan, where NEC and other Japanese companies dominate. IBM's Japan unit is in the top five in Asia, though, adding to IBM's allure for Lenovo.

Based in Beijing and listed on the Hong Kong Stock Exchange, Lenovo has made its mark by producing a line of low-cost PCs, some selling in China for as little as US$360. With huge sales to Chinese government agencies and schools, and with immunity from the tariffs levied against foreign brands like Dell, Hewlett-Packard and -- so far -- IBM, Lenovo now controls about 27 percent of the Chinese PC market, which is about to pass Japan to become the world's second-largest personal computer market after the US.

But the company is experiencing growing pains as it tries to hold onto market share at home while also venturing into Western markets.

The company's stock price recently plummeted after Lenovo reported worse-than-expected earnings, citing a price war in China with Dell, Hewlett-Packard and IBM.

Lenovo may not end up acquiring IBM's PC business, as at least one other potential buyer is also in negotiations. And other bidders may emerge.

But if Lenovo succeeds, acquiring the IBM unit would ease some of the competitive pressure domestically. Still, recognizing that profitable growth within China may be increasingly hard to come by as outsiders flock to the world's potentially biggest consumer market, Lenovo knows it needs to expand its global share of the market beyond its current 2.6 percent. Acquiring the IBM business, now ranked third globally, would raise that share to 8.6 percent -- still third, but a bit closer to Dell (18 percent) and Hewlett-Packard (16.1 percent).

As part of its global campaign, the company earlier this year shed its longstanding name, Legend, in favor of the current one, then promptly entered the global brand sweepstakes by signing on as a sponsor of the 2006 Winter Olympic Games in Turin and the 2008 Olympic Games in Beijing.

To what extent, and for how long, Lenovo or another buyer of IBM's PC business would be able to make use of the IBM name would be a key question in any negotiations. But the company has made it known that it is open to deals.

"Acquisition is one of the possibilities," Mary Ma, Lenovo's chief financial officer, said in an interview last year.

Founded in 1984 by a group of Chinese scientists with government financing, the company started out as a distributor of computers and printers, selling IBM, AST and Hewlett-Packard models in China.

In the late 1980s, however, as an exemplar of a trend that would play out in many Chinese industries, the company moved higher up the food chain by beginning to design its own personal computers. By 1997, it had passed IBM to become the largest seller of personal computers in China.

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