Which PC Deal Will Be the Most Synergistic?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

On December 7, 2004, IBM (NYSE: IBM) announced that it was selling its Personal Computing Division to the Chinese computer company Lenovo.

At that point in time, with approximately $12 billion in annual revenue, Lenovo was the world’s third largest PC company. 

At the same time that IBM announced that it was selling its Personal Computing Division, it also announced that it was also taking an 18.9% equity stake in Lenovo. 

Since then, both IBM and Lenovo have benefited tremendously from the strategic alliance in PC sales, financing, and service that was formed. 

On October 10, 2012, for instance, several articles with headlines such as “Lenovo tops HP to become No. 1 PC maker,” were written.    

Microsoft & Dell

Now we are seeing Microsoft (NASDAQ: MSFT) work with Dell (NASDAQ: DELL) to determine Microsoft's role once Dell goes private.

A few weeks ago, Microsoft reportedly proposed to contribute $2 billion or more of equity as part of a deal to take Dell private. 

That deal would value Dell at approximately $22 billion and Microsoft’s contribution would provide it with a significant stake, particularly if you consider that about $15 billion is coming from debt financing.

If Microsoft is putting up that kind of cash, you can certainly expect that they will have a significant voice in Dell’s operations and strategy.

Given that Dell is the world’s third largest supplier of PC’s and a critical vehicle for Microsoft’s Windows operating system, this looks like a marriage made in heaven.   

After all, the computing industry is rapidly changing and it is in both parties best interest to collaborate and innovate because both companies are facing increased competition.

Dell, once the world’s largest supplier of PCs, is now the world’s third largest supplier. 

Plus Dell and Microsoft have struggled to compete in the tablet and smartphone space.

EMC & Lenovo 

EMC (NYSE: EMC) and Lenovo (NASDAQOTH: LNVGY) are teaming up to sell co-branded network area storage products to businesses. 

This partnership is very interesting because Lenovo has little experience in this space.

Lenovo will be able to provide server-plus-storage offerings and sell more server products.

Lenovo will also benefit from this agreement because it will develop capabilities by gaining access to various technologies such as EMC’s Iomega storage technology.

And EMC will benefit from this relationship because Lenovo will help it enter the high-growth Chinese market. 

This relationship is not without a certain amount of irony, though, if you consider that Lenovo is now competing with IBM – the company that sold its PC business to Lenovo – in the storage product space. 

When Lenovo purchased IBM’s PC division, however, that purchase did include some IBM server products.  But that was more than 8 years ago!

So with this partnership both companies should be able to collaborate to develop new innovative solutions as well as increase their market share – and perhaps compete with IBM!

3 Critical Takeaways

  1. EMC and Lenovo are in competition with IBM in the server and storage space.           
  2. EMC and Lenovo are well-positioned to increase their global footprint and market share.
  3. Hewlett-Packard will attempt to leverage the uncertainty surrounding Dell to its advantage.

My Foolish Take

This space is rapidly changing and that is why it is important to closely monitor and consider the various partnerships that emerge.  It is not uncommon for a strategic partner to become a competitor almost overnight or vice versa.  Moving forward, strategic relationships will become an increasingly important driver of innovative solutions.


RyanPeckyno owns shares of Microsoft. The Motley Fool owns shares of EMC and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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