Lenovo - IBM deal

IBM has sold its PC production to a Chinese, state-controlled company called Lenovo (originally Legend) for 1.25 billion dollars. Half of the amount is paid immediately as cash, the other (smaller) half is paid by Lenovo's stocks. It's pretty amazing and it would have been hard to imagine 20 years ago.

IBM is a company with a long tradition. Incidentally, the Czechoslovak branch of IBM was nationalized (i.e. stolen by the communists) after the World War II, and it became a pathetic company called Kancelarske stroje, n.p. This company (the name means "Business Machines, National Company") was an excellent example of the technological inferiority of socialism: its products could have been compared to the Western products 15 years earlier. After the Velvet revolution, this gap immediately disappeared - and the very new technology penetrated through most levels of the Czechoslovak society.

In the early 1980s, IBM became the pioneer of the PC production - and in some sense, it was then viewed as a monopoly - maybe even more than Microsoft is viewed as having monopoly in the operating systems today. But capitalism is a very dynamical system. IBM made some errors - for example, a significant portion of its profit went exactly to Microsoft because Microsoft was more "clever" in making some deals (I am talking about the money from having MS-DOS on the IBM PCs).




I am mentioning this example of IBM exactly because of some accusations against Microsoft that are completely misled. Microsoft is not a safe company with a permanent monopoly: it continues to be the software leader only because it keeps on doing a very good job. But it faces various types of competition - other commercial and semi-commercial systems (Apple and Linux) but also various competitors that appear on the Internet. These other companies have all the rights to compete with Microsoft, and it is perfectly conceivable that Google Inc. will become the universal leader of the software industry in 5 years, for example. All such things can happen in capitalism - they have happened many times.

Back to the IBM story.

Today, IBM's revenue is slightly less than 100 billion dollars per year; roughly 10 billion dollars is the profit, but the PC branch generates virtually no profit (or a negative one). So it's not shocking that they are happy to sell it for 1.25 billion dollars. The Chinese finally became the "predators" and acquired a rather valuable brand.

What about the future of Lenovo? I am not sure, but still, I am rather skeptical. It's hard to imagine that Lenovo will keep the western markets. It seems easier and safer to buy a Dell computer than a Lenovo computer - Lenovo's headquarters are about 10 timezones away after all. China's recent growth has been great, but honestly speaking, it has still been a growth controlled by the Western companies. Can they keep the technological standards and make enough progress? Who knows. Lenovo may also follow the example of Kancelarske stroje, n.p. ;-)

They will have to rely on the Asian markets, especially China itself. Their advantage is that the people with nationalist emotions will prefer a Chinese brand - and Lenovo is a Chinese brand. However, I am not sure about these emotions. The more you go to the East, the more the regular customers know or think that the West - and America in particular - is the leader in technology that can be trusted.