China’s largest personal computer maker, Lenovo Group, announced
on Wednesday that it is buying control of IBM’s PC business for
US$1.3 billion, capping the US giant’s gradual withdrawal from the
business it helped to pioneer in 1981.
The deal makes Lenovo the third-largest PC company in the world,
moving up from the eighth position.
The agreement calls for Lenovo to pay IBM US$650 million in cash
and US$600 million in Lenovo Group common stock. The group will
also assume US$500 million in net balance sheet liabilities from
IBM. Lenovo is also buying out IBM’s interest in its joint venture
with Lenovo rival Great Wall Technology, China’s No. 2 PC
maker.
IBM will take an 18.9 percent stake in Lenovo.
With the deal IBM, Lenovo Group Chairman Liu Chuanzhi will
retire and incumbent CEO Yang Yuanqing will replace him. Stephen M.
Ward, Jr., from IBM will take over as new Lenovo CEO.
The deal is the end of an era for the world’s largest computer
company and the dawn of a new age for China's PC industry as Lenovo
takes its place as a major international brand and IBM partner.
The sale of IBM’s PC desktop, laptop and notebook computer lines
frees the US company to focus on higher-margin businesses such as
computer services, software, more powerful server computers, and
storage as well as computer chips.
For Lenovo, which is battling intense competition in its home
market, the deal with IBM is a breakthrough in its efforts to build
its business abroad. It also makes the company part of a small but
growing group of Chinese manufacturers buying overseas brands.
Lenovo will take ownership of the IBM “Think” trademark family,
including its ThinkPad notebooks and its ThinkCenter desktop
line.
Lenovo will hire 10,000 IBM PC employees, including about 2,300
in the United States, largely product designers, marketing
personnel and sales specialists. Most of the 7,700 others are in
China, where IBM operates a manufacturing joint venture.
Lenovo, founded in 1984 by a group of academics at the
government-backed Chinese Academy of Sciences in Beijing, is
China’s biggest computer maker and is also the biggest in Asia. Its
shares are traded in Hong Kong.
Speculation that IBM was pulling out of the PC business has been
rife since the beginning of the month, and rumors began to surface
earlier this week that it might be negotiating with Lenovo.
“The bigger the baby, the more difficult the delivery,” quipped
Chairman Liu Chuanzhi when asked about the delay in making a formal
announcement.
IBM’s computer unit recorded sales of nearly US$13 billion in
the 12 months to September 2004, an amount that now accounts for
only a small portion of the company's total sales.
Globally, IBM sold 6.8 million PCs in the first nine months of
2004 for a 5 percent market share, according to technology research
firm Gartner Inc. That compares with 16.4 percent for Dell and 13.9
percent for Hewlett-Packard.
Both IBM and Lenovo have been grappling with the difficulties of
turning a profit on PCs, a business that has suffered steep price
declines over the past decade as a result of aggressive competition
from such makers as Dell and eMachines Inc. The companies expect
that by combining operations, they will be able to cut costs and
expand their razor-thin profit margins.
Lenovo faces increased competition at home and in Asia from
foreign companies such as Dell. The Beijing-based company, formerly
known as Legend, tried diversifying into cell phone manufacturing
and information technology services, but with lackluster results.
It says it is now focusing on its core computer business again.
(China Daily December 8, 2004)