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Lenovo to Acquire IBM's Personal Computing Division
December 9, 2004 |Estimated reading time: 2 minutes
Armonk, N.Y. & Beijing — IBM's awaited personal computing division sale to Lenovo Group Ltd. has become official; IBM has announced that they will pass the unit to the China PC manufacturer for $1.75 billion.
The deal reportedly makes Lenovo the world's third largest PC company, with $12 billion in revenue and volume of about 12 million units, falling behind Dell and HP.
"This agreement is consistent with IBM's strategy to focus on those segments of the enterprise and SMB [small and medium business] markets where we can best leverage our value add by owning those assets and capabilities where we can create significant value, and partnering for other capabilities to provide our clients with end-to-end solutions," says Mark Loughridge, IBM's senior VP and CFO.
"The IT sector is one of the most dynamic in the market. To bring long-term value for clients, companies need to continually reinvent themselves," Loughridge continues. "In recent years, we have talked about bifurcation in the industry where two winning models have emerged; the high-value, high-innovation, solutions-led model, and the low-cost model that requires economies of scale and requires differentiation through other means."
However, for IBM, the cut will not be a clean one. The complex transaction, expected to close in Q2 2005, reportedly calls for IBM to take an 18.9% equity stake in the foreign company, making it Lenovo's second largest shareholder.
Furthermore, IBM will become the preferred services and customer financing provider to Lenovo, while Lenovo will become the preferred supplier of PCs to IBM. Lenovo products will also be sold through IBM PC specialists that will join Lenovo, allowing IBM to keep supplying Think PCs. IBM Global Financing and IBM Global Services will be preferred providers to Lenovo for leasing and financing services, and for warranty and maintenance services, respectively, according to IBM.
Stephen M. Ward, Jr., currently IBM senior VP and GM of IBM's personal systems group, will become CEO of Lenovo, following completion of the transaction. Yuanqing Yang, currently vice chairman, president and CEO of Lenovo, will serve as the chairman of Lenovo post-transaction. In addition, approximately 10,000 current IBM employees will also join Lenovo, which will locate its PC business worldwide headquarters in N.Y., like IBM, with principal operations in Beijing and Raleigh, N.C., and sales offices throughout the world.
Richard Douherty, Envisioneering Group research director, says this type of deal may be the next big thing for cooperation with China-based companies. "We see this deal as another landmark in electronics," he says. He noted a similar deal between RCA Thompson and China's TCL last year, where TCL bought RCA and its well-known brand from the company. Following that, Thompson and TCL in July merged into one company.
In any event, the PC industry will see a 10% up-tick next year, according to IDC, which believes the growth will be driven by strong sales in the commercial segment.
"The continuing market growth provides an excellent environment for Lenovo's acquisition of IBM's PC division," Alan Promisel, mobile computing analyst at IDC, says. "Lenovo gains the global reach and scale to compete internationally while strengthening its position in relatively high growth commercial and portable markets."