by Cui Qingxin

    BEIJING, Dec. 16 (Xinhuanet) -- Lenovo and IBM, the two companies involved in last week's 1.75 billion US dollar's PC business deal,have revealed their intentions for the merger.

    IBM and China Great Wall Computer Shenzhen Co., Ltd. announced an agreement to establish a new joint venture to produce computer servers for Asia, on Monday.

    "We want to set up China's largest server production base with China Great Wall" and "We want to help Lenovo to become a global PC giant," Chairman Henry Chow of IBM China said Tuesday at a press conference, in response to a reporter's question on why IBM has made the two big moves with two Chinese partners within a single week.

    In unloading its personal computer business to Lenovo Group, IBM managed to keep the division's most profitable pieces -- services and support, said Henry Chow.

    Taking PCs off the books will be "a huge benefit to their profitability," noted Alan Promisel, an analyst at IDC, said when speaking of IBM.

    Meanwhile, according to the agreement, IBM will hold 18.9 percent share in the enlarged Lenovo. This enables IMB to ride on Lenovo's coat-tails into a potentially large Chinese market, whileshedding a slow-growing portion of its business.

    "In the coming 20 years, we will see IBM and China's IT industry can be the major roles in the international market," Chowacknowledged.

    Chow also said, however, "We hope Lenovo can save our costs by improving efficiency."

    Lenovo didn't conceal its worries over the merger: "IBM is too much concerned with big scale clients and fails to cover small or medium sized customers, which are the core target consumer groups in running PC business." according to the new chairman Yang Yuanqing.

    To face the challenge, Lenovo plans to integrate IBM PC business' supply chain as an effort to cut costs. One year later, Lenovo will unite the two companies' marketing and distribution sectors as its second integration step and, after that, Lenovo will march into international market with a totally integrated image, Yang noted.

    "If it is only a financial transaction, I guess Lenovo wouldn't do," said Song Xueren, vice-chairman of Goldman Sachs Asian branch, "It is a strategic cooperation."

    Lenovo's new PC business is expected to benefit from IBM's worldwide distribution and sales network covering 160 countries.

    Lenovo commanded a 27 percent share of China's PC market in 2003 and Lenovo PCs ranked number one in the Asia-Pacific region (excluding Japan) with a share of 12.6 percent in 2003. Upon acquisition, Lenovo's world's market share will rise to 8 percent in terms of shipment.

    In Wednesday's celebration of Lenovo's 20th founding anniversary, IT experts boasted of how Lenovo has paved the way for the globalization of Chinese industry.

    "The purchase has changed the landscape of the global PC manufacturing business," as Lenovo former chairman Liu Chuanzhi said.

    Some IT insiders, however, are not optimistic to Lenovo's buying.

    "Judging from past PC-related acquisitions, the acquiring company struggled and typically ended up giving up market share," Goldman Sachs analyst Laura Conigliaro wrote in a research note.

    In past mergers, such as Gateway Inc. and eMachines Inc., and Hewlett-Packard Co. and Compaq Computer Corp., the combined companies' market share turned out to be less than the individual merged companies, Conigliaro wrote.

    The stocks of the Chinese computer maker rose 6 percent the morning of December 9 -- after their trade had been suspended for three days. But the stocks fell by more than 10 percent by the close of the day to 2.58 HK dollars (33 US cents), after several international investment banks voiced doubts about the deal.

    IBM's stocks on the New York Stock Exchange closed at 96.65 US dollars, an increase of 0.57 percent, on December 8 after the dealwas announced.

    Alan Hsieh, president of the US IT market research house IDC's operations in the Chinese mainland, Hong Kong and Taiwan, noted that Lenovo will have huge challenges on the road ahead. Enditem