Posted on 12/07/2004 6:32:06 PM PST by Tumbleweed_Connection
China's biggest computer maker, Lenovo Group, said Wednesday it has acquired a majority stake in International Business Machines Corp.'s personal computer business for $1.25 billion, one of the biggest Chinese overseas acquisitions ever.
The deal shifts IBM to a peripheral role in a corner of the technology industry it pioneered.
It creates a joint venture in which Lenovo Group Ltd. takes over the IBM-brand personal computer business, including research and development and manufacturing, while IBM will keep an 18.5 percent stake in the company, said Lenovo's chairman, Liu Chuanzhi.
The deal makes Lenovo the third-largest PC company in the world, he said.
Like other major Chinese manufacturers hoping to expand overseas, Lenovo is planning to leverage a well-known foreign brand name. Liu said the company would be entitled to freely use IBM's brand name in five years' time.
IBM's computer unit had sales of nearly $13 billion over 12 months ended in September.
Lenovo, founded in 1984 by a group of scholars 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.
The announcement Wednesday followed reports that a deal was imminent. On Tuesday, Lenovo's Hong Kong unit confirmed it was in talks with a "major international company in the information technology business" but hadn't named the company, saying the negotiations were confidential.
"The bigger the baby, the more difficult the delivery," Liu quipped when asked about the delay in making a formal announcement.
With speculation about the impending deal mounting, IBM's stock fell $1.57 per share to $96.10 in Tuesday's trading on the New York Stock Exchange.
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 thanks to aggressive competition from Dell and upstarts such as eMachines Inc., which was acquired earlier this year by Gateway Inc.
Once a key player in popularizing the personal computer, IBM is now increasing its focus on consulting, outsourcing and software, analysts say.
Its PC business now accounts for a small portion of its total sales and profits, according to analysts. It ranks a distant third in terms of PC units sold, having surrendered the market lead by the late 1990s, according to the technology research firm Gartner Inc.
Globally, IBM sold 6.8 million PCs in the first nine months of 2004 for a 5 percent market share, Gartner said. That compares with 16.4 percent for Dell Inc. and 13.9 percent for Hewlett-Packard Inc., which makes both the HP and Compaq brands.
The companies expect that by combining operations, they'll be able to save money on manufacturing 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, had expanded into cell phone manufacturing and information technology services, with lackluster results. It now says it is focusing on its core computer business again.
IBM was not the first technology company to sell a computer small enough to sit on a desk or table. But it did popularize the idea of a "personal" computer for the mass market with the 1981 introduction of a desktop machine featuring a more user-friendly operating system, a software platform licensed from a then-fledgling company named Microsoft Corp.
IBM, based in Armonk, N.Y., has nearly 320,000 employees.
Great chinese need more computers for their ICBM's
Use your PC to watch NBC's late-nite comedy show.
sell your Dell stock. china will undercut their prices so much, with cheap labor and cheap parts, with their own semiconcudtor fabs which are being built night and day over there - they will own the desktop PC market. Dell can make servers I guess, for a while.
Actually, they still own about 14% of this new company and this is only the laptop and personal desktop business. All the Intel, AMD server business, tech workstations (Intellistations), are still IBM branded hardware offerings.
Oh well, most of the components are now Chinese anyway. I do love that thinkpad.
In two years we'll be seeing laptops in blister packs behind the registers at our local chain drug stores.
Ping!
don't worry, the free traders will be here soon to tell us that the PC and semiconductors are buggywhip industries. we don't need them, or their jobs. we have plenty of jobs here, Home Depot created 30,000 jobs in 2004, why do we need tech jobs?
make that 18.9% retained ownership ... not a bad deal.
Lenovo buys IBM PC unit for $1.75 bln
By August Cole, CBS.MarketWatch.com
Last Update: 9:12 PM ET Dec. 7, 2004
SAN FRANCISCO (CBS.MW) -- Lenovo Group Ltd. will buy IBM's personal computing business in a $1.75 billion deal, creating what the companies said Tuesday night will be the No. 3 PC maker worldwide.
Lenovo buy IBM PC unit in $1.75B deal Tech stocks close sharply down after recent gains Lenovo confirms it's in acquisition talks More news for IBM
The deal involves IBM (IBM: news, chart, profile) taking a 18.9 percent stake in Lenovo (LNVGY: news, chart, profile) (HK:992: news, chart, profile) and is expected to close in the second quarter of 2005.
The total transaction is valued at $1.75 billion, with IBM receiving receive $650 million in cash and $600 million in Lenovo stock, according to the companies. Lenovo is expected to assume $500 million in balance sheet liabilities, as well.
IBM said the deal will have a "minimal financial impact" in the fourth quarter. About 10,000 of IBM's workers will become Lenovo employees as part of the deal.
In five years, we'll ALL be working for the Japanese.
Oops, sorry, I thought it was the 1980s again.
Dell pc are made in China.
"Screw the Chinese Communists and their computers. I'll build my own machine."
Chicom parts? :-)
If Dell or HP had made the same offer, it would have been opposed on anti-trust grounds..which is probably why they didn't even bother..makes a whole lot of sense, eh?
Gratuitous obscure comnputer history comment:
Do you think they'll bring back the "chiclet keyboard?"
those 10,000 IBM employees who now work for the chinese. 9000 of them won't have jobs in the US by June 2005.
pinging while remaining interested in your thoughts concerning my cost-of-capital argument in the predecessor thread :-)
good point. of course, if we had tariffs on chinese imports, we could have done something about what will now be an erosion of the US PC business - the chinese will start dumping them here soon, selling below cost. the WTO will twiddle its thumbs while the US PC companies are decimated.
Great, maybe they can come up with a decent modern operating system for it to replace the MS DOS derived, CP/M copied, whatever it is called, dinosaur the geniuses of Redmond are selling us now.
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