Lenovo acquired Think and IBM's desktop business for US$1.75 billion in cash and equity in a deal early this month, taking the mainland PC contender from eighth to third place in global markets behind Dell and HP.
The acquisition - a first by a Chinese company of an iconic Western brand - will allow Big Blue to exit an industry it helped pioneer in the early 1980s, while repositioning itself as a services and solutions provider for businesses and institutions.
As the deal provides ownership of the Think trademark, sources believe the Beijing-based firm may instead migrate its brand onto this platform. "If (Lenovo) owns Think, then the need for it to manage a migration of the brand can be extended to a longer term," said an agency head.
Without ownership of Think, Lenovo would have had to grapple with a five-year deadline to develop a brand powerful enough to compete effectively against Dell and HP in worldwide markets and increasingly in China
The purchase had only provided use of IBM's powerful brand name for a five-year term, while also granting Lenovo access to a worldwide distribution and sales network that spans 160 markets.
"What this deal gives (Lenovo) is R&D - the opportunity to go more premium, for example with Thinkpad - and, above all, it gives it scale," said an industry source. "In the PC business, scale is king - domestic China and IBM global equals real scale."
Both sides have also struck a strategic alliance to make Lenovo the preferred supplier of PCs to IBM. In return, IBM will become the preferred services and customer financing provider to Lenovo.
"(IBM's PC) market share is only five per cent worldwide. The PC business is no longer critical for account control," noted Gartner's Singapore-based principal analyst Lillian Tay.
"PC manufacturers expect 2005 to be a good year, and Lenovo should be able to get into shape for the tough years to come in 2006 and 2007. Had this deal been made later, it would have been of lesser value to both companies."
Tom Doctoroff, Northeast Asia head of J. Walter Thompson, which has handled Olympic sponsorship marketing for Lenovo, said the company has acquired "funda- mental volume" around the world to position itself for long-term growth.
Nevertheless, the deal carries as many threats as it does opportunities for Lenovo. Sources cited Lenovo's sales-driven mentality and integrating two distinct business cultures as significant challenges facing Lenovo.
"This is the first time that a Chinese company is going to live and exist as a brand, rather than as a cheap supplier, outside the mainland. It's a historic challenge," said a branding chief.
