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Wednesday, December 8, 2004

ThinkPad Futures

In 1992 I was fortunate to have an assignment in IBM's personal systems group. I had been CFO in the computer integrated manufacturing unit of IBM just prior to that and was quite happy with what I was doing. However, a friend of mine, who was #2 guy in the personal systems group at the time, knew of my passion for personal computing and he convinced me to take a marketing role in the group. I was a newcomer at marketing but I had a great appreciation for the importance of having good names for things. We were looking for an "independent" sounding name for a newly formed PC division that had aggressive plans to become a major player in the corporate market. We decided on the "IBM PC Company". The organization was fast on it's feet and quite successful. A few months later it was time to announce the company's first tablet computer. The product used a handwriting recognition program from a company called Go (later bought by AT&T and eventually folded). The "tablet" was two inches thick and weighed eight pounds or so. The worst part was the tentative name -- the "IBM 486SLC-2 Tablet Computer". A consultant came up with an alternative name -- the IBM ThinkPad. It was descriptive but seemed very strange at the time (more on that story in the future). With last night's announcement of the sale of IBM's PC business, what is the future of the ThinkPad? I would say very bright.

The deal that was announced sounds very good to me as a stockholder and as a former member of the PC team. The IBM PC and IBM ThinkPad are sentimental to millions of people but the deal was not about sentiment -- it was about strategy. The jewel in the transaction is not in the numbers -- it is in the people. I have known Steve Ward -- the new CEO -- and Fran O'Sullivan -- the new COO -- for a long time. They are top notch executives. Steve has been IBM's CIO, a former ThinkPad general manager, and head of IBM's global industrial sector. With a proven management team in place it shows the customers that both IBM and Lenovo Group are serious about keeping them as customers. It also shows the employees in the new venture a leadership that they already know and trust.

There are a number of more subtle benefits to the deal that go beyond the initial numbers. One is increased presence in the China market. IBM has been operating successfully in China for many years and has thousands of customers and employees there, but now, with a strong "local" partner, they will be able to expand the relationships beyond the current base. Lenovo has a lot of experience in dealing with high volumes of products and, combining that with the world class research and development of IBM, Lenovo will be able to expand their capabilities and continue the innovation that has been a hallmark of IBM. By "untethering" the PC business from IBM the new venture will have more flexibility to bob and weave around the competitive landscape. Meanwhile IBM can focus on high value businesses such as software, support, consulting, and other services. The bottom line with the deal is that there is synergy breaking out all over the place.

I have confidence they can make the combination successful. IBM has a good track record of both acquiring and spinning off businesses. A spin-off of a low-end printer division in 1991became Lexmark International, Inc., which is a $5 billion company with a market capitalization of more than $11 billion. The spin off of the low-end storage business to Hitachi Data Systems has gone very smoothly. Same thing on the acquisition side. In 1995 IBM acquired Lotus Development Corporation which is now at the forefront of redefining client software for the enterprise. The acquistion of Price Waterhouse Coopers Consulting is a text book case of leveraging two companies into one. In the past two years IBM has had more than two dozen acquisitions (mostly middleware companies), such as Rational, that have been seamlessly integrated. The IBM management team knows how to work with other companies. Although handheld devices are becoming the majority player in the connected world, the PC is not going to go away anytime soon. I expect to be using ThinkPads for a long time to come.