News

IBM sells PC business for $1.25 billion

December 7, 2004

HONG KONG - IBM is selling its PC-making business to China's largest personal computer company, Lenovo Group Ltd. for $1.25 billion, according to a news release. The deal, which forms the world's third-largest PC maker, is the largest overseas acquisition by a Chinese company.

With the sale, IBM is free to focus on higher-margin businesses such as computer services and software. IBM will book a pre-tax gain of $900 million to $1.2 billion and improve gross profit margins by 3 percentage points, it said.

The deal calls for Lenovo to pay IBM $650 million in cash, $600 million in stock and assume $500 million in debt. It took 13 months to negotiate and is expected to close in the second quarter of next year.

IBM will hold an 18.9 percent stake in Lenovo, which will relocate its PC headquarters from Beijing to New York and possibly list shares on the Nasdaq or the New York Stock Exchange. Stephen Ward, IBM senior vice president, will become Lenovo's chief executive.

The deal makes Lenovo part of a small but growing group of Chinese manufacturers buying overseas brands. Notable among them is TCL International Holdings Ltd., which controls the RCA television brand through a joint venture it set up with France's Thomson.

Lenovo will jump from eighth place among PC makers to number three, combining its 2.2 percent share with the 5.5 percent held by IBM, according to Gartner. The combined businesses had sales of $12 billion last year. Dell Inc. leads the market with a 16.7 percent share, followed by Hewlett-Packard at 15 percent.

Lenovo will take ownership of IBM's "Think" family, including its ThinkPad notebooks and its ThinkCenter desktop line. The products will retain the IBM logo for up to five years before switching to a Lenovo brand.

The Chinese company will also buy out IBM's interest in its PC-making joint venture with Great Wall Technology, China's number two PC maker.

Lenovo will hire 10,000 PC IBM employees, including about 2,300 in the United States -- mostly in product design, marketing and sales. The remaining 7,700 are mostly in the Great Wall venture in China.

"Chinese companies want to have a bigger part of the value chain," said William De Vijlder, chief investment officer at Fortis Investments. "We will see that in the future, that Chinese companies who have been very successful, who are cash-rich, will use their financial states - their financial health - to buy stakes in other companies."