China's Lenovo announced that it was acquiring IBM's loss making PC unit on 8th December 2004.
The deal is far from complete as US Govt. is currently examining its national secutiry interests, before giving its permission to this deal. One of the key reasons is that China's Lenovo group is predominantly owned by the Chinese Government.
US Govt. has a few deals in place with IBM, and is hence worried about the involvement of Chinese Govt. in its deals. US is also worried about key hi-tech knowledge going to Chinese.
It is not clear whether the deal will be derailed because of these US concerns. IBM has a lot to gain as well from the deal, as the way the deal is structured allows IBM about 19% stake in the combined PC business of Lenovo-IBM. Lenovo has a 25% market share in the growing Chinese PC sales and with IBM's own market share, the combined market share will be at least 31% to start with.
Now, if for some reason, the IBM-Lenovo deal is scuppered by the US Govt., would any of the Indian companies Wipro or HCL be interested in stepping in acquiring the business? Wipro or HCL will not have the same stigma as a Chinese Govt. owned Lenovo, and may not attract the same regulatory worries.
Lenovo wanted to aggressively pursue a growth strategy which takes itself to North America and Europe. IBM, while a fairly well known brand, is however way behind market leaders such as Dell or HP. HP's position in PC market share was achieved post merger with Compaq. Dell is an aggressive direct-to-customer seller, eschewing all channel based sales. IBM, with a higher price tag for what is essentially a commodity couldn't sustain in such a cut-throat market. What can Lenovo hope to achieve from such a deal? For one thing, it can aggressively bring the price down and match the others. It can obtain access to good technology. It can achieve production scales by managing the production entirely out of China, while basing its sales and service operation headquartered out of USA.
Indian companies Wipro or HCL cannot simply match Lenovo at this stage in scales of production. However, the demands for PC in India will grow significantly. Today, the most significant market share is held by grey market operators put together - about 65%. HCL, Wipro and Zenith complete with HP, IBM and now Dell for the organized PC market share.
More than Wipro or HCL, would IBM be interested in a deal with either of these Indian companies?
What are you trying to tell finally to Wipro & HCL? :-)
ReplyDeleteSourcing hardware for cheap price will be a major roadblock for Indian companies, I think(what about GOIs import 'restrictions'?) apart from production scale.
Dell is literally swallowing the market!