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NYT: IBM PC Division Sold To Advance China's Goals 210

theodp writes "Back in 2005, Wharton's Michael Useem speculated that IBM's sale of its PC Division to Lenovo was more about ingratiating Big Blue with the Chinese government than getting top dollar for the assets. 'Government relationships are key in China,' Useem explained. Now, a NY Times article on outgoing IBM CEO Samuel J. Palmisano seems to confirm that Useem's analysis was spot-on. From the NYT article: 'In 2004, I.B.M. sold its PC business to Lenovo of China. Mr. Palmisano says he deflected overtures from Dell and private equity firms, preferring the sale to a company in China for strategic reasons: the Chinese government wants its corporations to expand globally, and by aiding that national goal, I.B.M. enhanced its stature in the lucrative Chinese market, where the government still steers business.'"
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NYT: IBM PC Division Sold To Advance China's Goals

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  • by dtmos ( 447842 ) * on Monday January 02, 2012 @05:52AM (#38562072)

    For once, a CEO thought beyond the next quarterly report. Be careful what you complain about.

    • by vikingpower ( 768921 ) on Monday January 02, 2012 @06:03AM (#38562092) Homepage Journal
      So. You suggest to complain about neither China, nor CEOs, nor about IBM. You're taking the fun away from my daily engineer's life !
    • by bonch ( 38532 ) * on Monday January 02, 2012 @06:10AM (#38562110)

      There's a book by Roger L. Martin called Fixing The Game [] which argues that the problem with large businesses today is that they are focused on the expectation market--maximizing shareholder value--as opposed to the real market--making good products and increasing customer satisfaction. For example, Enron was so focused on shareholder value that they manipulated revenues to increase stock price, while Apple was so focused on products that Steve Jobs was infamously dismissive the importance of his company's shareholders and joked that the one thing that kept him up at night was shareholder meetings.

    • Re: (Score:3, Interesting)

      by BlueStrat ( 756137 )

      For once, a CEO thought beyond the next quarterly report. Be careful what you complain about.

      Hey, he's only following the example set by the US government.

      The only difference is that the US government is selling the entire nation to the Chinese in the form of borrowing/debt to finance out of control spending on programs designed to produce citizens dependent on government for survival in order to help insure election/reelection with promises of more "free stuff", while simultaneously increasing their power over the populace in general through increasing control of ever more aspects of everyday life

      • by Shifty0x88 ( 1732980 ) on Monday January 02, 2012 @07:06AM (#38562240)

        Whoa whoa whoa, first off, IBM did this years before Obama spent all the money on companies which the people needed to exist or they would totally rely on the government for money and help. This of course after his predecessor cut taxes on the rich, made banks give loans to people who couldn't pay them off, oh and that little "war" we had over in the Middle East, which we are still in even if we aren't in Iraq some what, 10 years later? China only owns us on paper, and what are they gunna do about it

        I have to ask, are you a hipster Strat? You have that I like it, but only if I'm the only one that likes it

        I think IBM did this so they would get kickbacks from the corrupt Chinese government. It's in the article and in the blurb: "I.B.M. enhanced its stature in the lucrative Chinese market, where the government still steers business."

        • by BlueStrat ( 756137 ) on Monday January 02, 2012 @08:14AM (#38562450)

          Whoa whoa whoa, first off, IBM did this years before Obama...

          You seem to be under the mistaken impression that the things I described have only occurred recently, when in fact it's been a trend that has been accelerating for many decades.

          ...before Obama spent all the money on companies which the people needed to exist or they would totally rely on the government for money and help.

          Wait, what? By that logic the people are made dependent on the government either way. Having the government direct the "money and help" through a third party doesn't change anything, except for increasing the levels of corruption in both the government and private sector. Never mind the fact that the government has no business giving/loaning taxpayer money to private business simply to prop them up if they would otherwise not exist. Doing so distorts and eventually destroys the free market and twists capitalism into a corrupt and extremely destructive amalgam of socialism and fascism.

          "If we can prevent the government from wasting the labors of the people, under the pretense of taking care of them, they must become happy. - Thomas Jefferson"

          A government big enough to give you everything you want, is big enough to take everything you have. - Thomas Jefferson

          My reading of history convinces me that most bad government results from too much government. - Thomas Jefferson

          The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. - Thomas Jefferson

          Charity is no part of the legislative duty of the government. - James Madison

          The Utopian schemes of re-distribution of the wealth...are as visionary and impractical as those which vest all property in the Crown. - Samuel Adams

          The Constitution only gives people the right to pursue happiness. You have to catch it yourself. - Benjamin Franklin

          In the main it will be found that a power over a man's support (salary) is a power over his will. - Alexander Hamilton


          • by iter8 ( 742854 ) on Monday January 02, 2012 @10:16AM (#38562904)

            My reading of history convinces me that most bad government results from too much government. - Thomas Jefferson []

            Don't believe everything you read on the internet. - Abraham Lincoln.

      • by iserlohn ( 49556 ) on Monday January 02, 2012 @09:03AM (#38562610) Homepage

        Fiscal policy is one way to direct growth in the economy. Infrastructure projects, especially, provide the most bang for the buck in terms of value for money. The only problem is that infrastructure tend to require maintenance which means future funding is in essence commited. Social programs are also useful to ensure what is most fairly termed as equality of opportunity, to help alieviate the inherent unfairness of wealth distribution. It is not fair, as a matter of fact, to deny opportunity of advancement due to ones situation at birth. This is why we spend money on things like education so that we have a more inclusive society where advancement is based on merit, and not solely on whether you have the means to pay for advancement.

        Monetary policy is another way to direct growth although it tends to result in bubbles when the interest rates are very low levels to spur investments mainly fueled by debt. When money is essentially cheap, banks and investers tend to do stupid things with all this surplus cash flowing around - like making mortgages to people who they know can't afford it (and then selling the mortgages off at a profit to relieve themselves of any risk), or private equity making leveraged buyouts incurring a large debt on the target company which brings on unsustainable interest payments when the money markets dry up.

        Back to fiscal policy, the problem with the US is not that it is spending too much (compared to other advanced economies). It is mosty because public spending in the US is notoriously poor value. For example, the US spends ~8% of GDP on just Medicare and Medicaid, covering only a small proportion of the population. In total the US spends nearly 16% of GDP on heathcare. The UK for example, spends only 8% on its healthcare system that covers everybody, at all ages.

      • The only difference is that the US government is selling the entire nation to the Chinese in the form of borrowing/debt to finance out of control spending on... [etc., etc.]

        You'll have to forgive me for nodding off there, but the phrase "out-of-control spending" is repeated so often these days that the sight of it is enough to bore me asleep.

        Anyway, that's off topic. What really bugs me is the whole "selling us to China" meme. What percent of public debt do you think china owns? 50%? 75%? The answer, if Wikipedia is right (and maybe it isn't, but I'm going to ask for a citation if you think so) was 8%, or about a trillion dollars, as of may 2011. The U.K., not for nothing, h

    • Whatever the reason, the silver lining is they didn't sell to Dell. That would have been the worst possible outcome for the Thinkpad line. *shudder*
    • by Runaway1956 ( 1322357 ) on Monday January 02, 2012 @07:14AM (#38562258) Homepage Journal

      How about I complain about Corporate America and Corporate Globe whoring themselves to China?

      Few if any corporations owe their past successes to China. These prostitutes are selling technology discovered by mostly the Western world, and Russia, and some from the third world to China for a short term profit. Yes, 5 years or 10 years is short term. China is the only frigging entity in the world with a long term goal. Assassin's mace.

      Oh, but someone will post here again, telling me that's just a conspiracy theory. Conspiracy theory my ass - we see it happening before our very eyes. []

      It is their goal to dominate the United States economically, politically, and militarily. And, IBM sells out to China, just as they sold out to the Nazi's before the United States declared war on them.

      HEY, IBM!! You owe your current economic position and success to the west!

      • by Anonymous Coward on Monday January 02, 2012 @08:17AM (#38562464)

        If you were aware of world history as it relates to China and western countries, you would know that "the west" owes its advancing to the industrial revolution and beyond directly to Chinese technologies (e.g., Paper, gunpowder, compass, and printing). So that China is going to inevitably dominate the West yet again is simply a return to the historical norm.

        And that China is getting access to western technologies to do so is entirely justified based on history.

        • Gunpowder, yes. Compass? " The earliest Chinese magnetic compasses were probably not designed for navigation, but rather to order and harmonize their environments and buildings in accordance with the geomantic principles of feng shui." Paper? Most definitely not - heard of papyrus? I believe the Egyptians came up with that first. Printing? I really don't think so. "The history of printing started around 3000 BC with the duplication of images. The use of round "cylinder seals" for rolling an impress o

      • It is their goal to dominate the United States economically, politically, and militarily.

        Well, yes, but also the rest of the world. They want to be dominate. The same way that the USA does. And Russia. And, well, all nations. It's kind of their natural goal. (Except for Switzerland, but they're kinda freaks). The same way that corporations want to dominate their market (and all markets, really). They want to, you know, "win".

        It only ever comes down to war when shit gets really bad. We're not anywhere near war. We're not at war with EastAsia or EurAsia. Get over it.

        But yeah, dick move on

      • Just because you predicted someone would call you out for being a conspiracy theorists doesn't make you any less of a conspiracy theorist.

        China has a goal to be the dominate world power economically, politically, and militarily? No shit, Sherlock. Why do you think the EU formed? Because despite their permanent Security Council status, France is too small to be the dominate world power on their own. So they corralled other European states around them for the economic weight to have a fighting chance against

        • In your list of unjust diddling in other nation's affairs, you forgot a pretty important one. Operation Ajax has come back to bite us in the ass. And, the fallout is still falling, so it's impossible to say how badly we've been bitten.

          I'm not blindly in love with my government, after all. My government has committed a number of heinous acts, including forced sterilization for women accepting medical aid in Africa, experimenting on black inmates with gonorhea, subjugating the Native Americans - and much,

    • by migla ( 1099771 )

      >For once, a CEO thought beyond the next quarterly report. Be careful what you complain about.

      Clever point about the longterm. I feel a bit ambivalent about this, since the longterm thingy may be good. The doing business with the oppressive regime is bad.

      This reminds me of IBM selling the gassingadministrationsystems (or whatchamacallit) to the Nazis...

      We should perhaps not blame the corporations, though, but also not expect any sort of decency from them. The solution should instead be outlawing genocide

    • Yes, and placed the interests of his company ahead of his country. It would be great to see the US government display to IBM that they need to do a bit of relationship building here at home, perhaps through a complete absence of government grants or contracts in the future until they give us that sort of consideration.
    • For once, a CEO thought beyond the next quarterly report. Be careful what you complain about.

      Too bad he didn't think so far ahead to see what happens when IBM makes inroads into China's market and China turns around and screws them. Which is basically inevitable.

  • by Karmashock ( 2415832 ) on Monday January 02, 2012 @06:32AM (#38562148)

    They're implying that IBM took less money for it's asset to curry favor with the chinese. That would only make sense if IBM got more money then the difference between the two payments over time as a result of that good will.

    Has that happened? I don't know... I think American business might have been too brash in it's oriental investments. Most of them seem to be backfiring in alarming ways. We seem to have taught our chinese business contacts just well enough to start competing with us directly where before our technological edge made that impossible.

    In any case, it seems like many of the US multinationals have woken up to the issue. We'll see what happens.

    • Re: (Score:3, Insightful)

      by andydread ( 758754 )
      Not sure a significant enough amount of North American multinationals have woken up to the issue. Many business are crawling all over themselves to get a piece of the "emerging China market" and that is their focus while completely ignoring the fact that all China wants to do is learn so it can create its own to compete with them. I see it didn't go good for Google. It won't go good for Bing. GMs marketshare in China is dismal. And on and on. US companies will never gain a foothold in China unless
  • Ouch! (Score:5, Informative)

    by CuteSteveJobs ( 1343851 ) on Monday January 02, 2012 @06:37AM (#38562172)
    Palmisano was not well liked within IBM. He was after all the guy who told IBM's US employees they could take a job in the third-world at third-world wages or stay in the US and get sacked. For this Palmisano will be forever despised. []

    Sure, the business press has wet dreams about Palmisano and Gerstner who picked him as his successor: []

    But the truth was really quite ugly. You won't read this in Forbes, but you will read it in - of all places - the reader feedback at Amazon:
    It is strangely ironic that, after doing his best to suppress all negative communication within IBM, it should be the reader feedback on that alerts Gerstner to what the world at large really thinks of him.

    In the last five years, Gerstner has reaped a profit of [$$$] million in the sale of awarded stock options. These stock options were awarded while he held the joint positions of IBM CEO and chairman. During that period, IBM spent [$$$] billion buying back its own stock to drive the price up so that executives could cash out at handsome profits. This is money that could have been spent on developing new products, attracting new talent and honoring promises made to employees and retirees.

    Where did all that money come from?

    Not from profit growth, which remained flat at about 2 percent per year when you strip out the retirees' pension fund surplus "vapor profits."

    It came from selling off large chunks of the company and its assets, laying off tens of thousands of employees and slashing pension and health care benefits for employees and retirees. In 2002 alone, IBM has quietly cut 15,000 jobs. Health benefits, which were promised "free for life," now cost retirees a substantial amount of their pensions. Only one minuscule cost-of-living increase has been awarded pension recipients in the past 11 years.

    The greed doesn't stop there. Now, Lou had not only been retained as chairman of the board, he has been awarded a 10-year consulting contract, with fully paid expenses at his previous salary of $2 million a year. These expenses have been conservatively estimated to be $100,000 annually.

    Save IBM? More like turning it into just another money grubbing corporation while lining his pockets. I would love to see a rebuttal book. God help us all if Lou's management methods become benchmarks for future corporate leaders. []
    • Re:Ouch! (Score:5, Interesting)

      by Elbereth ( 58257 ) on Monday January 02, 2012 @08:29AM (#38562510) Journal

      Gerstner and Palmisano transformed IBM from a lumbering, confused giant into a lithe dancer. I admire them for that. They also taught me to never put my trust in a multinational corporation. You'd think that, by the 1990s, I would have learned that, but, no, I needed further negative reinforcement before the lesson would stick. OS/2 was a very special object lesson -- abandoned by one vendor, then the other. Both vendors had been deliriously enthusiastic, hyping it to levels that were only topped by the Amiga. Unsurprisingly, I also bought into that, as well. Yes, I really know how to pick a winner. After the slow, agonizing deaths of the Amiga and OS/2, I had an epiphany and switched to Linux. My resolve has not been resolute over the years (being a gamer under Linux sucks), but I can credit IBM with driving home the lesson that I should have learned 10 years prior to that: never, ever trust a multinational corporation. It's unsurprising that a corporation willing to treat its customers poorly would also treat its employees poorly. It's just business, though. Business as usual.

      The lesson is not such an easy one to learn. Everyone hates Sony, Microsoft, Intel, and other Slashdot whipping boys, but how many people implicitly trust Apple or Google? Well, I don't trust any of them. Multinational corporations exist to make money, not to follow through on promises made to customers. That doesn't necessarily mean you should boycott every multinational corporation, if you're already happy with their products and services -- just be realistic enough to recognize that if they can make more money by screwing you over than by providing good service, most of them will.

      • by Raenex ( 947668 )

        Citing OS/2 is a strange example. It's not like IBM screwed people over. They lost to Microsoft Windows. They gave it a serious go (unlike HP's WebOS), and supported it far longer than most companies would have.

        • by Elbereth ( 58257 )

          You're right. Re-reading my post, I think I mixed together two or three different points indiscriminately, ultimately switching abruptly to a rant about the evils of commercial software, right in the middle of some kind of socialist rant. Honestly, I'm not entirely sure what I was thinking. In my defense, I'm bipolar and unmedicated. If my thought processes end up being a bit chaotic and disconnected, hopefully I can be a source of amusement, at least.

          That just wasn't a very well thought out or composed

      • by Dr. Evil ( 3501 )

        Gerstner saved IBM from irrelevance and possible bankruptcy. Palmisano turned it from a hardware company into a services company, a services company particularly adept at outsourcing.

        It is not lithe. These guys steer the company 5 years into the future. They have an advantage in that where they move, they tend to change the future, but if they pick a bad direction, the company is screwed for at least a decade.

        The sour grapes you're hearing are not from people who were OS/2 or Thinkpad loyalists, they'

        • The sour grapes you're hearing are not from people who were OS/2 or Thinkpad loyalists, they're from present and former employees.

          As a former employee, I'm quite happy with Gerstner. Mostly because he quadrupled the price of the stock I held. He also sold off the business unit I was it, but eh, I was quitting anyway.

    • by DaveGod ( 703167 )

      Is "[$$$] million" supposed to be some kind of fact?

  • market" .............

    so in the end didnt they end up selling it for top dollar ?
  • Trust? (Score:4, Insightful)

    by PolygamousRanchKid ( 1290638 ) on Monday January 02, 2012 @06:55AM (#38562214)

    Although US and Chinese companies do business with each other, I'm not really sure that they trust each other. And both sides have good reasons for being so. US companies want access to a growth market, but are wary of their investments in a country whose government and legal system don't function like they are used to elsewhere. China is fearful that foreign companies want to get in to exploit their market and resources, while cutting not fostering local business growth.

    But at the moment, business and government go hand-in-hand in China: you can't deal with one, without automatically dealing with the other. So yes, if IBM wanted to dump their PC business anyway, because it is now a commodity business, why not use it as a pawn it a greater game with China?

    However, IBM still makes high end Intel blade servers. What will happen when Lenovo starts to wander up into that end of the market?

    • Except for the branding advantage of having a PC division, the blade market has nothing to do with the PC market. (And, that branding advantage was small enough that IBM took some cash and didn't look back when dumping it.) The design and manufacture of PC's has little to do with all but the lowest-end servers, except for the fact that they happen to use the same CPU instruction set. But motherboard engineers practically grow on trees, so that isn't much of an advantage at all.

      I'm not saying Lenovo won't

  • IBM (and it's CEO), taking notice of the business climate in another country, accepted less short-term cash on an acquisition in order to help promote long-term sales. This is exactly the sort of decisions a CEO is paid to make; this is what we want them to do!

  • by Required Snark ( 1702878 ) on Monday January 02, 2012 @07:07AM (#38562244)
    Should IBM be registered as the US agent of a foreign government? In the last year or so they stopped reporting how many people they employ on a per country basis. I can only assume that they did this so they could maintain an illusion that they were still a US-centric organization.

    Given the way many large US based multinational companies behave, they routinely put their corporate interests at odds with the US government and economy. They ship as many jobs as they can overseas and doge taxes. GE paid no federal income tax last year. GM invested in it's China operations while it was in a bankruptcy funded by the US Treasury.

    But since they are still "US" corporations they don't get the kind of scrutiny that would be required if they were not US based. It would be a lot more realistic to recognize that they have no meaningful commitment to the US and they act on their narrowly perceived economic goals. It would be better for the country if their access to the US political establishment was limited, based on how their economic interests driven by non-US governments.

    • It would be a lot more realistic to recognize that they have no meaningful commitment to the US and they act on their narrowly perceived economic goals. It would be better for the country if their access to the US political establishment was limited, based on how their economic interests driven by non-US governments.

      ...and yet corporate interests reign supreme in U.S. politics, because what's good for them is 'good for the people of the U.S.' or so they would have you believe. How many examples like this are needed before people will stop coddling corporations who have absolultely *0* loyalty to the U.S. at all.

      • Government sucking up to business isn't based on the notion that the businesses are loyal to the nation. It's based on the fact that the businesses have the money that nations need to thrive. It's based on the fear that if we are not business friendly, business will simply flow to more business-friendly nations, and we'll be an economic backwater. I say, there is at least some truth to this. The economy has become global, whereas governments are stil only national.
    • Interesting insight there. If you pay no taxes you shouldn't be allowed to lobby the US Govt. Wait.... They purchase elections for congressmen and senators so they may look at that as the taxes they have paid no?

    • Do it publicly, loudly, and in a way that their lobbyists can't object to witnessing.

    • Funny, that's not what they say to their own employees. IBM employees are told that they belong to a global company, working and doing business with everyone in the world. Also, even though they say they are global, they've got to be based somewhere, right? And lo and behold, it's in Armonk, New York [], not in the Cayman Islands (although I don't know whether they have a subsidiary there or not).

    • Should IBM be registered as the US agent of a foreign government?

      Should the US government be registered as the US agent of multiple foreign governments and stateless entities?

  • by m00sh ( 2538182 ) on Monday January 02, 2012 @07:25AM (#38562290)

    Is the outrage because the country is China? Every laptop I've bought in the past five years have come from China.

    I think the biggest fear we have is that China is now going to create companies that as the article says are global players. We have constantly dismissed China as a cheap labor pool where work would vanish if the wages went up, then as backstabbing reverse-engineers who dare betray the sacred trust of US companies of moving their operations to China for profit, and then to mindless cultural inferiors where American exceptionalism would outshine and blaze away anything the Chinese could do. Now, we're fighting the fear that Chinese could become global players with these thinly-veiled outrage stories.

    As they used to say in the 80s movies, "are you afraid of a little competition?"

    • I would say that China is just the Japan of the 80's, but the fact that they have massive resources and are trying to be more than just a financial powerhouse has my gut saying that they're going to be a major player and not just a decade fad like Japan was. China is basically what America was around WW2, an industrial powerhouse coming into it's own.
      • by swb ( 14022 )

        China may still suffer a Japanese meltdown. You can't swing a dead cat these days without reading about the risks inherent in the Chinese economy and how those risks are made worse by the Chinese political system.

        Whether it's bad lending practices, how the domestic economy is basically built on real estate and construction, the currency pegging and under-valuation, inflation -- there's all kinds of naysayers pointing out disturbing facts, often with the disclaimer that they're basing it on the official Chi

    • US wages need to drop to force prices down so we can compete.

      That will force local prices down too.

      • by KDR_11k ( 778916 )

        That would heavily reduce the purchasing power of the USA and collapse it as a market to sell luxury goods to. Most of the things sold in the US are already made in China, they won't get significantly cheaper just because US wages are dropping. So people would simply be unable to buy as much which means both a lower quality of life and drastically reduced revenues for companies selling to the US.

        The US economy would shrink massively while the US debts remain the same, including the interest payments. The de

  • Nope. I have been writing here that IBM, GE, Dell, etc. are nothing but immoral companies. Heck, pointed out about the IBM's cooperation with NAZIs, and yet we get fools that scream that it was a one time thing. Most of AMerica's large businesses are worthless POS. What amazes me, is that most of the R&D that America paid for, is simply being handed over to China, but IBM wants America to pay them to do a super computer here, but have it built in China.

    Just worthless POSs at IBM. I am glad that I am o
  • Maximum profit (Score:2, Insightful)

    by octogen ( 540500 )
    The IBM home page tells me about IBM's "responsibility" regarding things like:
    societal issues
    the environment
    ( -- also click the links on the left, for example about politics)

    But what's more important, is how to be good friends with chinese dictators who don't give a shit about any of the topics mentioned above, so as to make more $$$ by doing business with china.

    I doubt that acting like this is going to turn this world into a
  • The problem with this whole topic is that it seems to imply that China is different that other countries... in particular that the US government doesn't do basically the same thing by different methods. The most egregious example is of course the bank bailout, where the US government gave US banks trillions of dollars to cover the losses they incurred in the course of their own freely chosen business activities. Another example would be how the US government continues to buy billions of dollars of airplan
  • ... I shudder to think what Dell's cost-cutting frenzy would do to the quality of the ThinkPad line.
  • BusinessWeek []: "The deal's advocates faced a barrage of questions. In addition to Mary Ma, Lenovo's chief financial officer, the lineup included people from consultant McKinsey and investment bank Goldman Sachs (GS ). The directors' chief concern: Were Lenovo's execs really capable of running a complex global business? The breakthrough came after three days. The directors concluded that if Lenovo could recruit IBM's top execs to help manage the company, this merger could succeed. "The board felt there were p

Machines that have broken down will work perfectly when the repairman arrives.