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2014 Media Kit

IBM’s CEO visits China for trust-building talks with government leaders

By: | at 04:07 PM | International Trade  

A slide in IBM Corp’s sales in China amid a broad backlash against claims of U.S. government spying has triggered a rare visit to Beijing by Chief Executive Officer Ginni Rometty.

The head of the world’s biggest technology services company arrives in China’s capital on Wednesday for three days of meetings with government leaders, according to people familiar with her visit. The visit comes as U.S. firms like IBM and Cisco Systems Inc seek to restore trust with Chinese regulators and reverse slumping sales.

Beijing has encouraged state-owned companies to buy China-branded products since last year’s revelations by former National Security Agency contractor Edward Snowden of spying. That has undercut business at some U.S.-based multinationals operating in the world’s second-biggest economy.

In Beijing, Rometty will have meetings with Chinese officials including Vice Premier Wang Yang, responsible for helping to formulate China’s economic policy. The IBM chief also is expected to meet officials from the Ministry of Industry and Information Technology, and top state-backed customers.

The precise agenda for the meetings couldn’t be ascertained immediately.

“IBM doesn’t talk about or confirm our executives’ travel plans,” said New York-based company spokesman Edward Barbini.

Though IBM books only about 5 percent of its sales in China, it has been operating there for 30 years, tapping into the country’s rise as an economic power. China sales fell more than 20 percent over the second half of last year, dragging down the company’s emerging markets business overall.

It’s an unwelcome distraction for the Armonk, N.Y.-based firm as it continues to embrace higher-margin software and technology services while moving away from hardware. Last month, IBM agreed to sell its low-end server business to Lenovo Group Ltd. (0992.HK), the Chinese firm that acquired IBM’s ThinkPad business nearly a decade earlier.

The $2.3 billion deal was struck at about one-half the reported asking price a year earlier, after the low-margin server business posted seven quarters of losses as clients moved to cloud computing.

Second Visit

Rometty is the second top IBM executive to travel to Beijing in the last four months to meet Chinese officials.

In November, IBM dispatched its head of governmental programs, Christopher Padilla, the former Under Secretary for International Trade at the U.S. Commerce Department, following announcement of the company’s third-quarter earnings.

Padilla met with Wang Chao, China’s Vice Minister for Commerce, along with officials from the Ministry of Industry and Information Technology, according to people familiar with his visit.

Rometty, in her meetings, is expected to emphasize the tech giant’s commitment to local partnerships, future cooperation, and information security.

In the aftermath of Snowden’s revelations, U.S. technology companies, including IBM, “face an uphill battle proving their equipment is not compromised”, A.M. Sacconaghi of Bernstein Research wrote last month.

The U.S. cloud computing industry alone may lose as much as $35 billion in worldwide sales over the next three years, according to estimates by the Information Technology & Innovation Foundation, a Washington, D.C.-based non-profit think-tank.

In December, Louisiana Sheriffs’ Pension & Relief Fund sued IBM at U.S. District Court in Manhattan, accusing the firm of concealing how the U.S. spying scandal would reduce its China business. IBM had lobbied Congress to pass legislation allowing it to share personal data of customers in China and elsewhere with the NSA, the lawsuit claimed.

“These allegations are ludicrous and irresponsible and IBM will vigorously defend itself in court,” IBM spokesman Doug Shelton said in an e-mail.

In China, IBM is uncharacteristically reliant on hardware sales, primarily to state-owned enterprises. While sales of mainframe computers, servers, and storage account for about 15 percent of IBM’s worldwide revenue, in China hardware comprises 40 percent of local revenue.

“China is going through a very significant economic set of reform,” IBM’s chief financial official Martin Schroeter told analysts on the company’s earnings call last month.

“While there is more clarity on the overall plan, we continue to believe that it will take some time for our business in China to improve,” he said. (Reuters)