China PC giant may enter India

Lenovo buys IBM's PC unit for $1.75 billion

Lenovo, China's largest computer maker, is acquiring IBM's personal computer business in a deal valued at $1.75 billion that underlines the emergence of Chinese technology companies on the world stage. The deal may also pave the way for Lenovo to foray into India.

The acquisition will catapult Lenovo from being the eighth largest PC maker in the world to the third largest behind Dell Computer and Hewlett-Packard and is also one of the largest ever foreign acquisitions by a Chinese company.

The move may also temporarily disorient some brand loyalists, but is not expected to affect the robust 35 per cent growth seen in personal computer sales in the past three quarters.

IBM's 'Think' range of personal computers, which are priced at a premium, are expected to become more cost-effective after the deal. "IBM personal computers were priced higher as it leveraged the brand premium. The Chinese are known to be price warriors and Lenovo PCs may lower the price bar," an analyst said.

However, if Lenovo decides to enter the Indian market, it will have to contend with the average Indian's disinclination towards Chinese goods. "This will be an issue once the IBM brand is phased out over the next five years. It remains to be seen what sort of marketing strategy Lenovo will adopt to overcome the hurdle," the analyst said.

Vinnie Mehta, executive director, Manufacturers Association of Information Technology (MAIT), the apex body of hardware makers, said in the era of specialisation IBM had done what was perhaps the best option available to it.

"From an India perspective, one thing is sure. Because of a growing local market for hardware, global majors are more than keen on setting up shop here. It is likely that Lenovo will enter India through the IBM deal," Mehta said.

At present, around 3 million personal computers are sold in India, of which IBM accounts for 200,000-240,000 machines.

IBM had a market share of about 8.3 per cent in the third quarter of 2004-05 in India, compared with 7.8 per cent in the second quarter.

The company has been aggressively pushing its personal computers in the recent past, targetting small and medium enterprises.

The company has a manufacturing unit in Pondicherry, which can assemble 200,000 personal computers. It has 269 people on its rolls at the unit, of which 54 are employees, while the rest are contract workers.

IBM earned a net profit of just around $100 million on global sales of $9 billion from the personal computer business. The enlarged Lenovo will have annual revenue of more than $12 billion and will move its headquarters from Beijing to New York.