From IBM to Lenovo: Architecting a Global Supply Chain Divestiture in 143 Days

1. From IBM to Lenovo: Architecting a Global Supply Chain Divestiture in 143 Days David Eagle Business Development Executive

2. A robust supply chain is essential for an on demand business On Demand Business–A Definition An enterprise whose business processes–integrated end-to-end across the company and with key partners, suppliers and customers–can respond with flexibility and speed to any customer demand, market opportunity or external threat. KEY ATTRIBUTES RESPONSIVE VARIABLE FOCUSED RESILIENT

3. In 2002, IBM integrated our supply chain operations into a single organization BREADTH OPERATIONS TEAM STRATEGY TEAM TALENT TEAM MANUFACTURING PROCUREMENT CUSTOMER FULFILLMENT GLOBAL LOGISTICS DEPTH TECHNOLOGY COMMON DATA & GOVERNANCE

4. When IBM put it together, it made an impressive footprint • 19,000 employees at 100 locations in 61 countries worldwide • Approximately $40 billion, or roughly 50%, of IBM’s total cost and expense • More than 2 billion pounds of machines and parts moved annually • Handling over 78,000 products, with over 3 million configurations • 45,000 business partners worldwide • 33,000 suppliers connected through the Web • Approximately 350,000 updates are made a day to the 6.5 million customer records from IBM’s 1.7 million orders a year in North America alone • Employees speak over 80 languages

5. Forming an organization with a compelling vision was a start. But to drive change and deliver sustainable results IBM had to: • Transform & strengthen the functions while building end-to-end capability • Reduce fixed costs and drive flexibility in infrastructure • Implement common global processes & technology • Apply governance, performance goals and reporting disciplines • Tend to the culture, emphasize talent and improve skills

6. Today, it is integrated across IBM’s business SERVICES SOFTWARE SYSTEMS & TECHNOLOGY Procurement Manufacturing Customer Fulfillment Global Logistics Supply Chain Operations Demand/Supply & Inventory Engineering RESEARCH

7. The on demand model is giving IBM: • Greater efficiency • Server volume growth contained with minimal spending increases yielding ~10% productivity gains • Procurement "hands free" transactions up from 78% to 90% • Logistics volumes up 31%, costs down 21% • A more variable cost structure • Fixed spending for high volume systems manufacturing down 33% over 3 years • Logistic warehousing from 100% owned to 100% vendor managed • Improved responsiveness and flexibility • Ability to respond to shifts of hardware demand inside quarterly lead time by up to 50% • Customer fulfillment e-Applications reduced annual calls from clients by over 600,000, saving 2.9M • Reduced number of non-strategic suppliers by 80% • Better business process controls • Reduced escapes (maverick buying) from a high of 35% to less than 0.2% • Acceptable business controls (audits) from 85% to 95%+

8. IBM/Lenovo Transaction and Project Management

9. IBM and Lenovo Transaction • Strategic Alliance for IBM and Lenovo • New Lenovo Overview • Leveraging Strengths • Complementary Organizations • Lenovo Transaction • Background / Details • Challenges Faced • Project Management • Key Success Factors to Execute

10. IBM and Lenovo: Enter into Long-term Strategic Alliance Leading Productsand Brands World Class Service & Support Global Reach New GrowthOpportunities Scale

11. The New Lenovo: Overview • $13B sales (last 12 months) • 19,000 employees • WW Headquarters: New York, USA • Principal operations: Raleigh, Beijing • Public company with ownership positions by Lenovo and IBM • Notebooks and Desktops • Enterprise, Mid-Market, Consumer & Small Business

12. LE / MM 17% SB / Consumer 83% The New Lenovo: Leveraging strengths to pursue opportunities Product Mix Segment IBM % of Revenue Lenovo % of Revenue IBM % of Revenue Lenovo % of Revenue Notebook 18% SB / Consumer Desktop Notebook 40% 43% LE / MM, 60% 57% Desktop 82% Geography Global Opportunities • Top six emerging countries will represent 39% of the 2004–2006 growth opportunity* • IBM is performing well on the premium product segments in these countries with the proper sales and distribution channels to reach these markets • The new Lenovo will have a broader product portfolio to capture this opportunity IBM % of Revenue Lenovo % of Revenue AP Americas 32% AP 42% 100% EMEA 26% Data Source: IDC PC Tracker / Internal sources

13. A Perfect Fit between Complementary Organizations • #1 IT Brand in China • Most recognized technologybrand in China • Consumer / Small Business Expertise • Differentiated consumer/small business and extensive retail network • Efficient Operational Platform • Low cost infrastructure and manufacturing scale • Premium Global PC Brand • Most recognized technology brand globally • Enterprise / Mid-market Expertise • Leader in business productivity & lowest total cost of ownership • Notebook Leadership • Leading-technology enhanced notebook product offering • Global Sales, Financing, Fulfillment and Service Network • Global sales network with financing, fulfillment and service support

14. Lenovo Transaction Background / Details • Divesture of IBM’s Personal Computing Division (PCD) to Lenovo announce Dec 2004. • Transaction transferred business with revenues in excess of $10B/yr and valued at $1.75B. • Global business with worldwide reach transferring 11,500 IBM employees, more than 100,000 customer, 23 functions, 66 countries and 100+ business partner supported countries worldwide. • IT systems segmented impacting over 2,000 applications including SAP and over 100 legacy systems within 143 days from the signing and public announcement to the closing. • Transition designed to ensure transparency to the customer with no adverse effects impacting the market nor the shareholders for both companies.

15. Managing complexity of global landscape across Functions / Countries / Process Extremely aggressive timeline – 143 days from announcement. Segmentation of a fully integrated PCD from IBM (e.g. 11,500 employees with integrated roles, common infrastructure, manufacturing sites, indirect support, Sales and IT) Focus on linking process, data & tools Business Model and Legal Structure Financial Landscape Unique ledger system created for Lenovo True-ups, balance sheets, feeders, TSA / MSA management Lenovo Transaction – Challenges Faced • HR in scope employees, supporting organization structures, HR work councils • Government approvals – eg CFIUS, security and access requirements • Involvement of 3rd party investors • Hong Kong Stock Exchange • Buyout of minority interest in China mfg facility and formation of new IBM facility • Communication of Project from Executives to extended teams in both companies • Business Controls – ASCA, process change mgmt, security access controls, ledger feeders, and Sarbanes-Oxley compliance

16. Management and Segmentation of the Project • Small “Core” Project Office focused on managing & delivering operational readiness • Accomplished through: • Highly structured weekly/daily management system cadence managed by IBM Business Consulting Services • Driving ownership and accountability • Managing critical milestones and dependencies • Segmented project into 6 manageable phases/steps • Deal definition and negotiation • Initial project plan development • Detailed project plan development • Readiness review phase • Readiness signoff phase • Post closing project completion • Managed across Functions, Geographies, Countries and Processes

17. Project Office Structure Complexity IBM Operating Team Executive Steering Committee (weekly) IBM Lenovo Global Functional Teams Global Functional Teams Contract Exec Development Development Marketing Marketing Transition Executive Sales & Distribution Sales & Distribution ISC ISC Service & Support Service & Support IBM Project Office IT IT Finance/Accounting Finance/Accounting Tax/Treasury Tax & Treasury HR HR BCS Providing Program Mgmt & cross functional coordination Real Estate Real Estate IGF IGF IP / Legal IP / Legal Corporate Functions EMEA EMEA AP AG AP AG Environmental Trademark mgmt Communications Corp Dev 13 Critical End to End Processes

18. Key Success Factors to Execute • Project Office with the authority to manage project and risks end-to-end • Ensure Executive and team support identified with ownership & accountability • Defined key critical checkpoints and project milestones • Lock down project scope, business model changes and IT • Communicate critical decisions and information frequently and globally • Drive strict weekly/daily and critical checkpoint cadence • Obtain Executive sign offs and manage to completion • Ensure deal execution and stabilization of operations with no adverse impact to customers, shareholders nor financials.

19. Key Takeaways • The on demand strategy drives greater efficiencies, a more variable cost structure, improved responsiveness and flexibility, and better business process controls for your company, your shareholders, and your clients. • Transformation is about integrating processes, people, data and tools to create a stable environment. • Experience is key. The skills that were gained are now being made available to other areas within IBM as well as to our clients. • IBM’s on demand strategy provided the flexibility required for success with the Lenovo divestiture.