December 8, 2004 12:12 PM PST

Palmisano memo: 'Repositioning for leadership'

Editor's note: In this e-mail sent to employees Tuesday, IBM CEO Sam Palmisano explains the company's decision to sell its PC unit.

From: Sam Palmisano
Sent: Tuesday, December 7, 2004 6:09 PM PT
Subject: IBM and Lenovo in New Strategic PC Alliance

Dear IBMer:

I have important news to share with you.

Today we announced a definitive agreement with the Lenovo Group, China's largest manufacturer and distributor of personal computers. Lenovo will acquire IBM's Personal Computing Division, creating the third-largest PC business in the world. Headquartered in New York, Lenovo's new PC business will be our preferred supplier of IBM- and Think-branded PCs. This will allow us to continue to provide our clients with end-to-end integrated solutions--but with the advantages of a PC business with unique and powerful capabilities: significant economies of scale, global distribution channels, strong brand recognition, an experienced and expert management team and workforce, and number one market position in the world's fastest growing IT market. In addition, IBM will be Lenovo's preferred services and financing provider. IBM will hold an 18.9 percent equity stake in Lenovo.

Today's announcement is the latest action we have taken in recent years to reposition IBM for leadership in a rapidly changing industry. For some time we have said that there are two ways to create long-term value for clients and shareholders in the IT industry: Invest heavily in R&D and be the high-value innovation provider for enterprises, or differentiate by leveraging vast economies of scale, high volumes and price.

IBM is an innovation company. We are committed to being the premier IT solutions partner for enterprises of all sizes, in all industries. This business model requires that we continuously create intellectual capital and that we reinvent everything we do--our technologies, products and services, our culture and our portfolio of businesses. This has been the hallmark of our company and has enabled IBM to grow and to lead countless product and technology cycles over many decades.

Today, computing and its uses are again changing radically--to what we've been describing as on demand business. This is opening up tremendous opportunities for IBM, and it's why we have invested billions of dollars in recent years to strengthen our capabilities in hardware, software, services and core technologies focused on transforming the enterprise. At the same time, the PC business is rapidly taking on characteristics of the home and consumer electronics industry, which favors economies of scale, pricing power and a focus on individual users and buyers. These are very different business and economic models, and they will diverge even further in the years ahead.

By combining our personal computing division with its own, highly complementary business, Lenovo will be much better positioned to capture the opportunities in the PC industry. Lenovo is committed to investing in, growing and winning in PCs. Lenovo will be a formidable competitor, and our alliance gives IBM an even stronger position in China, while strengthening our brand presence there.

Of course, IBM will continue to play a significant role in creating innovations for individuals--and not only through the broad PC alliance we are announcing today. As you know, our company is investing heavily to create the computing platform of the future. Our microprocessors and open software technologies underpin the next-generation on demand infrastructure, which will extend from the enterprise to the home to the mobile product to an expanding array of connected devices. In just the past couple of weeks, we've made significant announcements about advanced microprocessors we are developing in partnership with some of the world's leading consumer electronics companies, as well as initiatives to broaden adoption and support for these open platforms.

We are excited by today's announcement and how it further positions IBM for leadership in the days and years ahead.


 

 

 

Sam Palmisano
Chairman and Chief Executive Officer

 

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