THE MAN WHO BOUGHT IBM
By Liu Chuanzhi

(FORTUNE Magazine) – When Lenovo, China's leading computer maker, agreed in December to purchase IBM's PC division for $1.25 billion, it was a giant step onto the global stage for a company that started out 20 years ago in a two-room shack near the Chinese Academy of Sciences in Beijing. Founder Liu Chuanzhibegan by tinkering with magnetic storage technology, moved on to selling IBM and HP equipment in China, then made his own computers. FORTUNE's Asia editor, Clay Chandler, caught up with Liu a few days after the deal went down.

Why didn't you buy IBM's PC business when they first offered it to you three years ago?

When IBM first approached us, we said no almost right away. We thought there was too much risk. But then, about a year ago, we made a firm commitment to go global. We started talking to the big international players to understand the challenges. Eventually we came to see IBM's offer in a different light. As discussions progressed, we gained confidence that many of the risks we'd feared could be distributed or controlled. For example, we worried about losing customers. So we worked out an agreement that would allow us to continue using the IBM brand, to keep the IBM salespeople, and even to keep the top IBM executive as CEO. That gave us confidence we could give customers the same level of service and quality after the acquisition.

You got your start in business as a China distributor for IBM PCs. Did you imagine back then that two decades later you would buy the company?

Not in my wildest dreams.

The deal has clear advantages for Big Blue. IBM gets out of manufacturing, where profit margins have been deteriorating, and focuses on software and services, where margins remain high. What's in it for Lenovo?

What's in it for us is continued growth in profit. In China we have a $3 billion business with 27% market share. There's not much room to expand. The global PC market is $200 billion, so there's still a lot of potential. IBM has all the things we need. This deal brings us market share, management know-how, technology, and international reach. Remember, just because IBM is selling doesn't mean this is a bad business. They got out of large storage devices and printers, and those lines are still profitable.

But you're buying a business that was struggling. Why should transferring it to Lenovo make it healthier?

Big companies like IBM have a lot of overhead that we don't. By combining Lenovo's business with IBM's, we'll be able integrate supply chains and parts procurement to bring down costs. Unlike other mergers, where there's a lot of overlap, this match is complementary. IBM has a strong global business; Lenovo is the No. 1 player in China. IBM has great notebook technology; Lenovo has great desktop technology. IBM excels with high-end clients; Lenovo does well with retail customers.

Michael Dell says efforts to smash big computer companies together have had ruinous results--and predicts the Lenovo/ IBM alliance will be no different. What do you know that Dell doesn't?

In our discussions with IBM we have found that our corporate cultures are very similar. We're both aggressive and innovative. We value integrity and honesty. We believe in putting people first. As for Michael Dell's comments, they give us extra incentive to succeed. We're determined to make possible the things he thinks impossible. You know, it wasn't so many years ago that people said Michael Dell would never amount to anything, but he did. When we started this business 20 years ago, we had only $25,000 in working capital. No one thought we'd succeed either, but here we are.