US information technology (IT) giant IBM formed a new joint venture (JV) yesterday with the Chinese firm China Great Wall Computer Corp.

The new JV is the second co-operation deal in a week in the world's most populous market, further strengthening its influence on the IT industry in China and the world.

The new venture, announced in Beijing yesterday, is named the International Systems Technology Company (ISTC) and based in Shenzhen of South China's Guangdong Province.

IBM will own 80 per cent of stakes, and Great Wall will hold the remaining 20 per cent, the same proportion as in their previous JV for the International Information Technology Company (IIPC).

IIPC was sold to Chinese computer maker Lenovo on Wednesday, as part of an IBM-Lenovo co-operation deal.

Lenovo bought IBM's desktop and notebook businesses with US$1.75 billion in cash, stocks and inheritance of debts. IBM also receives 18.9 per cent of Lenovo's stocks traded on the Hong Kong Stock Exchange.

Great Wall Group also sold its 20 per cent-stake in IIPC, a 10-year JV with IBM.

Henry Chow, chairman and CEO of IBM China, said: "We formed this new venture with Great Wall based on two reasons: on the one hand, to cope with our global strategic change, and on the other to develop our co-operation with Great Wall to a new height."

Tim Carroll, vice-president of IBM, said the co-operation with Great Wall was in agreement with IBM's aim to focus on serving enterprise customers in all industries and do what IBM is best at.

ISTC is expected to be headquartered in Shenzhen Great Wall Computer Manufacturing Base and have an export factory in Futian Bonded Area of Shenzhen.

The formal operation will start in the second quarter, but trial operations have already begun at IIPC.

Carroll said there will not be any significant impact on the operation of IIPC with the establishment of ISTC.

The joint server manufacturing facility will make IBM eServer x series and IBM eServer p series for the Asian-Pacific market.

The Blue Giant is the world's biggest computer server vendor with 32 per cent of the market share in 2003, according to the market research house International Data Corp.

Sales of the JV are expected to reach US$1 billion next year, according to insiders.

With the establishment of ISTC, IBM will keep the manufacturing of both personal computers and servers running smoothly despite the sales deal with Lenovo.

Huang Yong, a senior industry analyst, said he believes IBM was the biggest winner in the two deals with Lenovo and Great Wall.

He explained on the one hand, IBM sold the personal computer unit, where IBM has seen losses and tried to sell for a long time, but on the other hand, it will have a bigger influences on Lenovo, a former rival of IBM.

The new JV with Great Wall will keep its manufacturing in China intact from changes and can also reward Great Wall for selling the stakes in IIPC.

For Great Wall, ISTC compensates the losses from selling IIPC, a gold mine for its Shenzhen Stock Exchange-listed China Great Wall Computer Shenzhen Co Ltd (Great Wall Shenzhen).

Great Wall Shenzhen received US$200 million in profits from IIPC in the past 10 years, although the initial investment was only US$980,000.

Its stocks fell over 10 per cent on Thursday when it sold the stakes to IIPC, but gained 2.38 per cent to 9.04 yuan (US$1.09) on Friday, when the news that it would form a new JV with IBM leaked.

(China Daily December 13, 2004)