IBM Strikes New China Bargain

IBM is forming a new joint venture with China Great Wall Computer to create
a server manufacturing facility targeting the Asian market. The announcement
comes just days after IBM
agreed to sell
its PC division to China’s Lenovo Group for $1.75 billion.

As part of that deal, China Great Wall sold to Lenovo for an undisclosed sum
its 20 percent interest in International Information Products (IIPC), another joint venture with IBM.

IIPC and its PC-related operations will join the new Lenovo, focusing on
being a prime notebook manufacturing and distribution center for Lenovo,
which is already a major distributor for PC options, accessories and spare
parts for global customers.

The server operations in IIPC will join the new joint venture between IBM
and China Great Wall known as International Systems Technology Company
(ISTC). The operation will be a manufacturing center for IBM, which controls
80 percent of the joint venture. Financial terms of the deal were not

The existing China Procurement Center in Shenzhen, built as a result of
IBM’s first deal with China Great Wall, will remain an IBM
entity. After employees supporting the PC business move to IIPC and Lenovo,
the site will still provide global procurement support to other IBM units,
and other IBM procurement service offerings to external customers.

According to China Great Wall, a new factory will be built in Shenzhen,
which is located in South China’s Guangdong Province, to produce IBM eServer
xSeries and IBM eServer pSeries.

“Both companies are committed to developing a talented workforce here, and
are fully committed to continue contributing to the development of China’s
manufacturing, supply chain and technology capabilities,” Jeff Gallinat,
general manager of IIPC, said in an IBM statement. “All parties
involved here are committing to make this a smooth transition that will
minimize any impacts to our customers and our employees.”

According to overseas press accounts, Henry Chow, chairman and CEO of IBM
China, said in Beijing, “We formed this new venture with Great Wall based on
two reasons: on the one hand, to cope with our global strategic change, and
on the other to develop our cooperation with Great Wall to a new height.”

Last Wednesday’s deal between IBM and Lenovo gives Big Blue almost $2
billion and an 18.9 percent stake in the new venture. IBM was able to unload
a division that contributed little to its bottom line, while focusing on
higher-margin businesses, like software and services, and gain a bigger
presence in China.

Deepak Advani, who has just been named chief marketing officer of the new
company, told last week that IBM is wrapping its
financing and maintenance around Lenovo’s hardware. Under the terms of the
deal, IBM Global Services will continue to provide remote customer support,
maintenance, and other PC related technical support to Lenovo’s clients.

“This is more than a sale. It is an alliance,” Advani said. “If you are an
IBM ThinkPad or Think Center customer or partner, not a lot has changed. In
fact, things will get better because there will be more opportunities going

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