IBM And Lenovo Settle Down Strikes In Shenzhen Plant
March 17, 2014 Timothy Prickett Morgan
As we reported in last week’s issue of The Four Hundred, IBM‘s $2.3 billion deal to sell of its System x server division to Lenovo Group touched off a protest in Big Blue’s factory in Shenzhen, an industrial area outside of Hong Kong.
The Shenzhen facility is important to Power Systems shops for a number of reasons. First, the factory doesn’t just make X86-based servers. For the past several years, it has been used as a staging area to refurbish Power-based systems and, while IBM doesn’t like to talk about it much, the factory also manufactures low-end Power Systems machines and very likely the Power-based Flex System nodes, too. So when there is disruption in Shenzhen, it can have an effect on the Power Systems business.
About half of the 2,000 workers at the plant went on strike two weeks ago over IBM’s transition package when they were told the plant would be sold off to Lenovo as part of the deal, and quite reasonably, workers were upset at the prospect of losing their jobs. Lenovo bought IBM’s PC business a decade ago, and while it initially kept all of the employees that moved over from IBM, it eventually shed about half of them. The deal between Lenovo and IBM apparently requires them to take the job at the Chinese PC and server maker or get a minimal payout from Big Blue, and this, among other things, is what the workers were upset enough by to actually go on strike.
To help quell worker fears, Lenovo put out a statement of its own in the wake of the strike and protests, which had died down considerably in the past week. Lenovo reminded everyone that the 7,500 employees who work for the System x division–including product development, manufacturing, sales and marketing, and staff employees in locations around the world–will all move to Lenovo, and that includes System x and PureFlex general manager Adalio Sanchez, as he explained to me in an interview recently.
“Part of the reason Lenovo is acquiring IBM’s X86 server business is to gain the tremendous talent and experience of its workforce, strong from top to bottom,” Lenovo explained in its statement. “Lenovo is buying IBM’s x86 business intact and Lenovo is similarly committed to following the IBM X86 server product roadmap. The talent we are acquiring is a great asset, and key to our long-term success. Lenovo will rely on these employees to build the business after closing and looks forward to welcoming them to Lenovo in several months’ time. To ensure a smooth transition Lenovo is committed to provide opportunity for all employees from IBM’s X86 server department who transfer to Lenovo, without any reduction of their wages and benefits. We value their contributions and our goal is to provide them with continued opportunity pending approval of this acquisition.”
As for the strike, Lenovo said that it was “an internal matter for IBM” at this point.
According to a report in the Financial Times, half of the employees have opted to take the severance package from IBM rather than to go work for Lenovo. Employees wanted a bigger severance package or higher pay over at Lenovo, according to the report, which cited information from a local labor lawyer in Shenzhen. IBM reportedly fired around 20 workers, most of them who were worker organizers. IBM is paying employees on the order of $1,000 for every year of service as severance and those who stay and make the move to Lenovo are being given a bonus of just under $6,000.
What I am curious about is how the strike and subsequent severances will affect production of impending Power8 systems, which could launch in late April or early May, if the rumors I have been hearing are correct.
I have never wanted for work, knock on wood, and when companies I worked for went bust, often surprisingly and dramatically, I never got severance pay. All of this is pretty foreign to me. What I can say is that I suspect IBM will take care of high-level executives a bit better than $1,000 per year of service, but these low numbers are a reflection of Chinese law and labor practices more than they are of IBM’s. All western manufacturers take advantage of this, and this is why capital goods are not as expensive as they might otherwise be. We are all complicit in this, whether we like to admit it or not. And we will not be surprised when manufacturing shifts to Africa next and we benefit from even lower labor costs. The fact that our own wages have stagnated will mean we will need the cheaper products.
Think global, act global. That is what I tell my kids. Don’t learn Mandarin or Cantonese. Learn engineering, and think at a systems level.