Posted on 12/07/2004 2:45:56 PM PST by NCjim
China's largest personal computer maker, Lenovo Group Ltd., could announce as early as Tuesday that it is buying control of IBM's PC-making business for up to US$2 billion, a source familiar with the situation said.
In its first disclosure that a deal may be imminent, Lenovo said it was in acquisition talks with a major technology company, without identifying the firm.
It asked the Hong Kong stock exchange to suspend trading in its shares for a second day, reversing an earlier announcement that trade would resume on Tuesday.
"Such discussions are at an advanced stage but no definitive agreement or letter of intent has yet been signed," Lenovo said in a statement. "There can be no assurance that any such agreement or letter of intent will be signed."
A spokesman for IBM declined to comment on Lenovo's statement or previous reports that the company that pioneered the personal computer industry is in talks to exit the business.
The Wall Street Journal said IBM would retain a minority stake in the business, which is estimated to generate about $10 billion a year in sales. The report, citing unnamed sources, said IBM would retain its PC service and financing businesses.
The sale of IBM's PC desktop and notebook computer lines would free the company to focus on higher margin businesses selling computer services, software and more powerful server computers and storage as well as computer chips, analysts say.
CUTTING EXPOSURE
The move to dispose of its PC business, which IBM started two and a half decades ago, is part of a long-standing effort by IBM to reduce its exposure to the market. It already relies on contract manufacturing partners, including a joint venture with China's Great Wall Technology, to produce all of its PCs.
For Lenovo, which is battling intense competition in its home market, a deal with the world's largest computer company would mark a breakthrough in its efforts to build its business overseas.
It would also make the company part of a small but growing group of Chinese manufacturers buying overseas brands.
A deal would propel Lenovo from eighth place among PC makers to the number three position, combining its own 2.2 percent share with the 5.5 percent held by IBM, according to Gartner.
Dell Inc. leads the market with a 16.7 percent share, followed by Hewlett-Packard at 15 percent. IBM is a distant third.
If a deal is reached, Lenovo's biggest challenge would be maintaining the strong reputation for IBM computers among the brand's customers, said Gartner analyst Annie Chung.
"The main point is how they maintain the brand name, the reputation if the merger goes through successfully," she said. "If it starts to lose confidence ... the acquisition, if it goes through, may not produce the results (Lenovo) wants."
IBM's ThinkPads are the leading brand among corporate notebook PC buyers. IBM also ranks among the top five in Japan's hard-to-crack domestic computer market.
IBM has exited the low-margin storage and memory chip businesses in recent years, while investing in what it sees as strategic growth areas such as computer services and software.
BLOCKING RIVALS
UBS Warburg analyst Ben Reitzes said in a note to clients he believes IBM will structure any deal to sell the business so that it can retain the ability to sell PCs to its corporate clients.
Analysts says IBM wants to keep arch-rivals Dell and Hewlett-Packard from capturing its $10 billion of computer sales if it were to completely exit the field.
"IBM could also be acting to create a more viable Lenovo in an attempt to block Dell and HP's rapid expansion in (Asia)," Reitzes said.
IBM's PC business employs roughly 10,000 people, including about 2,300 in the United States -- mostly product designers, marketers and sales specialists -- and some 7,700 overseas, a company spokesman said.
The latter includes more than 4,000 manufacturing workers in China employed by IBM's joint venture with Great Wall Technology in the southern Chinese city of Shenzhen. Most IBM ThinkPads are built through this joint venture.
IBM is going to sell of their lousy PC manufacturing? And, they actually found a buyer? Will wonders never cease.
I guess you've never paid $3,000 for an Alienware machine, have you?
Japan redux part II, inflationary dollars chasing over priced hard assets that will be sold back to bottom dwellers at 10 cents on the dollar.
Oops, of=off
And no, I haven't had the pleasure of buying an Alienware PC. However, I've had the dubious pleasure of working on IBM desktops.
Was it Sony that purchased a major movie studio for an enormous amount of mony, then sold it back for a huge loss?
Gad, typo's everywhere.
Mony=Money
That famous quote of P.T. Barnum comes to mind.
I think this is a disaster waiting to happen. Am i going to be shopping for 100 dollar pcs next to that 20 dollar dvd player and 100 dollare tv at wally-world next?
Why is that a disaster? Computers are already cheap - look at how many are in the cars, appliances and even toys you already buy cheap. Why should a desktop or laptop be so much more expensive?
In 1985, a PC cost $3000 with an OS. The OS alone (DOS) cost $150. That's 5% of the cost of the PC.
In 1995, a PC cost $1500 with an OS. The OS alone (Win95) cost $150. That's 10% of the cost of the PC.
In 2005, a PC will cost about $600 with an OS. The OS alone (WinXP) costs $150. That's 25% of the cost of the PC.
If a PC ever costs $0 to make, it will still cost the buyer $150, because that's the price that the Microsoft monopoly has decided to charge.
In 25 years of working in and around the telecom CPE business, I have never seen a worse pile of crap than a ROLM.
Why do you think desktop Linux will soon be the #2 PC platform?
Only if we're too lazy to choose a blank system option and install a free one of our choice. If consumers (Myself included) are too lazy to take up the free tools at their disposal the Op. Sys manufacturers deserve the huge fees they charge for their products.
A few years ago it was unfair because it was hellishly difficult to get a blank system, but as long as we can be sure that we're getting systems without hidden charges covering the costs of Windows then that's fine. When there's a valid alternative, the consuymer is king.
Mind you, if MS are still forcing manufacturers to bundle their stuff that's different. I think it's stopped, but anyone know for sure? Oh yeah, Microsoft sucks, but they're no longer forcing us to use them.
"If a PC ever costs $0 to make, it will still cost the buyer $150, because that's the price that the Microsoft "
That's why I'm moving my brain to the 'nixes. I have to build myself a grid computer for some software I've developed. Hitting the delete key on Microsoft and Intel will cut my costs a good amount.
Nothing against the two of them, but a dollah is a dollah.
Watch IBM stock, they have a subsidiary called "Veri-chip" they make the small rice sized chips that are being implanted in everything from pets to people. Combining the nano-chips with quantum dot technology could lead to some serious "big-brother" issues. Tracking devices, surveillance, not to mention some serious tin-foil hat fodder like "mind control" chips.
Microsoft is no longer able to use per-processor licensing schemes with OEMs. Instead, they offer the OEM a price for each copy of Windows, say $100, if they put Windows on every machine they sell.
If the OEM refuses, the OEM has to buy Windows at the retail price. In the highly competetive PC market, this puts at a severe disadvantage any OEM that wants to ship a PC with no OS or another OS. Traditionally, the big OEMs that do offer a machine with "no OS" send you a machine with no OS installed and a license for Windows. That's why many of the machines with Linux or a blank OS cost as much or more than the same PC with Windows installed.
So, unless you are buying through a small mom-and-pop PC shop (and even those are starting to fall under the Microsoft extortion scheme), even if you order a PC without Windows, you still bought Windows.
There are a few, Wal-Mart for instance, that sells a PC that genuinely doesn't send a check to Redmond. The other option is to build it yourself.
Yeah, Microsoft is no longer forcing us to use them, they just force the PC manufacturers to force us to buy them whether we use them or not.
So, is there any wonder why IBM wants out of the PC business?
The $600 is a median price. Yeah, you can get a $400 PC today. You can get a $1200 PC today too. But the typical PC goes out the door for around $600.
:)
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