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Wednesday, August 23, 2006

SEC Wizard: IBM's China Play IBM

Reuters writes that IBM will open four new offices a year in China's second tier cities to take advantage of the growing market and talent pool there. It will also allow the computer giant to have a larger footprint in the region as it attempts to increase business in India as well.

IBM needs to make the move. Unlike most tech companies, IBM is losing ground in Asia. According to the company 10-Q for the most recent quarter, IBM's Asia revenue dropped 9% to $4.2 billion. Total worldwide revenue for the quarter was $21.9 billion. Part of the drop in IBM's revenue in the region was due to the sale of its PC business to Lenovo. Revenue in Japan was off 13% as was China, while India revenue was up over 24%.

IBM cannot afford to continue to lose revenue in Asia. Its sales in the Americas and Europe are flat in a good quarter. If the company has an Achilles' heel it is that, unlike most tech companies, Asia is not a major growth market.

While it may appear that IBM's expansion in China is a smart move, it is also one of the company's only alternatives if it wants to see its worldwide revenue grow over the next decade.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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