Extraordinary Genius

Chapter 1179 – Cooperation with IBM

“boss, the stock index had started to rise again. Should we settle some of our futures contracts?” He Zhaoji asked over the phone.

“No. Continue to short it. Remember, don’t use high leverage, and you must use hedging.” Feng Yu instructed.

After hearing Feng Yu’s orders, He Zhaoji got more confident. Although many big US corporations were involved in financial scandals and the stock index plunged, it started to recover after a series of market adjustments.

The stock market is still very volatile, and there are many transactions. It is very difficult and tiring to trade during this period. Wind and Rain Consulting had invested a large amount in the stock market, and He Zhaoji is worried.

He Zhaoji is not afraid of losses but is afraid of losing all their profits. Even when the stock index rises by 10%, Wind and Rain Consulting is still making profits.

Feng Yu looked at the calendar on his desk. It is getting near, and he wonders if that disaster will still happen or not.

Feng Yu and Liu Chuanzhi had gone to meet IBM’s Chairman and CEO, Louis Gerstner, to discuss cooperation.

Lenovo wants to enter the US market and faced heavy resistance from other companies, including IBM. IBM has many dealings with the US governments and major corporations.

Liu Chuanzhi thought of a solution, which is to cooperate with IBM. Although IBM is more advanced than Lenovo, the gap is not that big. They are no longer innovative, while Lenovo is the market leader of Asia’s market.

Lenovo is also the one who forced IBM out of the Chinese market and cost their profits to drop. IBM had invested a lot to develop their technologies, and their recent two years’ profits were negative. These two years are their worst years since 1992.

In 1992, IBM had suffered the most losses in the world. Their losses are almost 5 billion USD, and they are the market leaders in the PC industry at that time.

After that, IBM announced they will be entering the software industry, and it will be the core focus of the company. They will be transiting from hardware to hardware, software, and servers. They became the world’s biggest software corporation.

In 1999, Microsoft overtook IBM as the biggest software company, and IBM had to settle for second place.

Currently, Lenovo Kingsoft is in the fifth position globally for software corporations, and it is still rising. Lenovo announced that they will become the fourth biggest software company within two years, and will overtake Germany’s SAP within five years and become the third-largest software company.

That means Lenovo had followed in IBM’s footsteps to produce hardware, software, and servers simultaneously. Also, Lenovo has the competitive advantage of the vast Asia market and cheap labor cost.

When Liu Chuanzhi told IBM that Lenovo wants to start a cooperation with them, Gerstner agreed immediately.

There are four people in the room. Feng Yu, Liu Chuanzhi, Gerstner, and Palmisano. Samuel Palmisano is Gerstner’s successor and is currently the President of IBM.

Gerstner’s contract will end next year, and he is also the boss of the biggest tobacco company in the US. He does not want to remain in IBM and wants to continue with his own business.

Gerstner used less than two years to turn IBM from losses of 5 billion USD to 3 billion USD in profits. After that, IBM maintained its profitability. Last year, IBM’s profits exceeded 6 billion USD and might be getting more profits this year.

Gerstner wants to give IBM one last push before he leaves. This way, he can make more money from the IBM shares he owns. He was awarded over 3 million IBM shares during his ten years span. His shares were worth over 300 million USD a few months ago, but it recently dropped to 200 million USD. Despite IBM’s higher profits, their share prices were also affected by the market crash recently.

IBM needs some news to push up their share prices, for example,… re-entering the Chinese market.

This cooperation does not include only their technologies. They will also be exchanging markets.

IBM will be Lenovo’s distributor in North America. Lenovo Group will be their distributor in China and the rest of Asia.

Of course, their cooperation is only limited to PC and does not include software. Lenovo’s software is still not on the same level as IBM.

Just look at SAP. SAP is set up by 4 former IBM software engineers, proving how strong their engineers are.

“Feng, Liu, glad you all can come to IBM. We will have good cooperation, and it will be a win-win situation for us.” Gerstner laughed.

“Of course. I can foresee IBM’s PC sales will return to the second place again.” Liu Chuanzhi replied with a laugh.

As for who is getting first in PC sales, it is all written on Liu Chuanzhi’s face.

“Liu, our PC’s quality is very good and can last…” Gerstner continued to talk about IBM’s PC advantages. PCs, or personal computer, is named by IBM and they are the pioneers in this industry.

But being the pioneers does not mean they will have the last laugh. It’s like a long-distance race. The ones who ran fast at the start might not retain their lead until the ending point. They might be overtaken at the beginning or halfway in the race.

Liu Chuanzhi and Feng Yu exchanged looks. IBM had taken a wrong step. Extending the lifespan of a PC is a wrong move@

PC’s technologies change very fast. Your IBM’s PC, especially laptops, the major weakness is its durability. The consumer will not change to a new one as the old PC is still working. But if he doesn’t change, the old PC will be too slow.

Also, IBM priced its PC very high. Their laptops are the most expensive among other brands.

IBM’s laptop is doubled as Lenovo’s laptop with the same specs. Who will buy their laptops in China?

Lenovo has always wanted to build the cheapest PC and let more people afford to own one. PCs should not be a high-end product, and it should be a device used by everyone. It will become a necessity like mobile phones in the future!

“No. If IBM still retains this mindset, you all will not succeed in the Chinese and Asia markets. These are the data on PC sales and prices. I think you will understand why IBM is no longer competitive.” Liu Chuanzhi gave Gerstner two documents.

Gerstner and Palmisano looked at each other and started reading the documents with a frown.

Translator’s notes:

Louis Gerstner