China Computer Maker Acquires IBM PC Biz

AP (AP) - - China's biggest computer maker, Lenovo Group, said Wednesday it has acquired a majority stake in International Business Machines Corp. (IBM)'s personal computer business for $1.75 billion in cash and stock, in one of the biggest Chinese overseas acquisitions ever.

The acquisition would make Lenovo the third-largest PC company in the world, said Lenovo's chairman, Liu Chuanzhihe. IBM currently holds that spot.

The deal ends IBM's long transition from PC pioneer to peripheral player. Under the terms, IBM will keep an 18.5 percent stake in the company.

The combined PC revenue for the two companies in 2003 was $12 billion. The new company will have and an estimated 8 percent share of the worldwide PC market.

Lenova will take over the research and development and manufacturing of the PCs, Liu told reporters in Beijing.

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.

Stephen M. Ward, Jr., currently IBM senior vice president and general manager of IBM's Personal Systems Group, will serve as the chief executive officer of Lenovo following completion of the transaction. Yuanqing Yang, currently vice chairman, president and chief executive officer of Lenovo, will serve as the chairman of Lenovo post-transaction.

IBM executives sought to reassure jittery investors, customers and employees, emphasizing the company's focus on continuity.

"The IBM brand will gain great recognition in China, the world's fastest growing economy and the world's fastest growing market for PCs," said John Joyce, IBM senior vice president and group executive of IBM Global Services.

"For employees, this represents an opportunity to join a vibrant and growing company and for investors this agreement represents an opportunity to reap the rewards of a growing company in a growing market."

Lenovo is China's biggest computer maker, claiming a 27 percent market share, and is also the biggest in Asia. Its shares are traded in Hong Kong.

The announcement Wednesday followed reports 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.

With speculation about the impending deal mounting Tuesday, IBM's stock fell $1.57 per share to $96.10 in trading on the New York Stock Exchange.

"The bigger the baby, the more difficult the delivery," Liu quipped when asked about the delay in making a formal announcement.

The companies expect that by combining operations, they'll be able to save money on manufacturing and expand their razor-thin profit margins despite intense pricing pressures. Lenovo also hopes the IBM brand and the company's vast corporate client base will bolster its sagging fortunes.

IBM designs its ThinkPad laptops and ThinkCentre desktops, but no longer manufactures them at any plants it owns alone. Instead, all its PCs are either produced through joint ventures or outsourced to other manufacturers.

Globally, IBM sold 6.8 million PCs in the first nine months of 2004 for a 5 percent market share, research firm Gartner Inc. (IT) said. That compares with 16.4 percent for Dell Inc. (DELL) and 13.9 percent for Hewlett-Packard Inc., which makes both the HP and Compaq brands.

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. (GTW)

Where an entry-level desktop computer once rarely sold for less than a thousand dollars, consumers can now find powerful, name-brand machines with a wide array of the latest bells and whistles for less than $500, including the monitor.

As a result, despite frequent accolades for many of its ThinkPad laptops, IBM has been shifting focus away from the PC business for years, emphasizing more profitable operations such as technology consulting, systems management, software and outsourcing.

Lenovo, founded in 1984 and formerly known as Legend, currently holds a 2 percent share of the PC market, according to Gartner.

But while Lenovo also has moved to lessen its dependence on PC's by expanding into cell phone manufacturing and information technology services, the company has said more recently it wants to focus on its core computer business again.

IBM, based in Armonk, N.Y., has nearly 320,000 employees.

Hmmm, that'd almost make me think about _buying_ Dell stock. I'm guessing that a lot of people might switch to Dell just out of temporary uncertainty. Then again I don't play the stocks at all, and for good reason...

I wouldn't. Both Dell and HP still have large manufacturing facilities in the US, and they are also dependent on AMD or Intel for semiconductors. I can't see how they can possibly compete. My guess is the Chinese bought IBM's operation more for the distribution channels and marketing organizations in the US, and any manufacturing facilities wiil be disassembled and shipped back to China. But more importantly from a competitive and investment perspective, I would assume they also got IBM's semiconductor production facilities, which will supply them with all kinds of stuff -including CPU's, that they currently have to buy from AMD or Intel. Unlike Dell, which is basically a company that slaps together boards into a PC, IBM had a vertical production operation that included even the low level phases of PC production. I think we are heading towards $99 PCs, and once again we are giving away an important industry to the Chinese.

"I've been moved" for the 21st century huh?

Hopefully the US will retain the coveted retail and service industry type jobs.

__________________
'90 300SE 298k
-300K and it gets put into retirement.
'80 300D 255k Purchased new by family in 1980.

Had a:
1973 220 (gas)
1980 300SD
1992 400E

Good points. As I have followed this sale I was glad not to have holdings in either Dell or HP. I believe you are correct in stating the prices will drop after the dust of the acquistion settle. What are the present labor rates in China?

__________________
Steve
'87 300TD - 132K - Soon 4-Sale
'84 300D Turbo - 122K - Driving
'77 VW Type II - 77K - Restored
'08 250EX Ninja
English Bulldog (Brier) - My best friend. Passed away 12/02/04 while in my arms.

I guess, but anyone who understands a household budget knows we have to somehow create more wealth than we consume - and the fact we are no longer doing that is reflected in the decline of the dollar. Retail and service jobs are not going to survive a severe depression. We are losing the basis for how we create wealth in this country, manufacturing, and the thing we were supposed to replace that with, information technology, is now fleeing the country as well. People in this country need to wake up and ask themselves just what it is we as a nation are going to replace that with. So far the answer seems to be debt. The big corporations may be wise to what is going on, and are going to start cashing out of this country - thanks to globaliztion and free trade policies that is now an attractive alternative to them, instead of doing what needs to be done to make American industry more competitive. It breaks my heart to see huge amounts of US capital going to leverage cheap Chinese labor (current rate is $1-$5 a day) when the same money, if spent on robotics here would result in a much greater benefit to our nation and allow us to sell at prices that would compete with slave labor. The Germans are doing it, and they are doing well with it. I think over time here we are going to figure out that multi-national corporations have no allegiance to any country, and giving so much political and economic power to them in this country may be something we all regret, because the real truth is they are not even citizens of this country, they have become virtual nations unto themselves. The role of government is to protect the citizens - we have lost that - it now protects multi-nationals over the citizens. It is a corruption and subversion of what government itself is all about.

Kirk,

and denote sarcasm.

I agree with you in every way.

Robert Reich for prez!

__________________
'90 300SE 298k
-300K and it gets put into retirement.
'80 300D 255k Purchased new by family in 1980.

Had a:
1973 220 (gas)
1980 300SD
1992 400E

Oh, Ok, I get it. pardon me.

and though only related on the periphery, the Euro countries have amassed their resources, retained their individual voting status and now watch as our dollar remains weakened. Strength in numbers? Guess if we want to play the isolationist country for awhile we will pay the price that goes with it. Too bad since it is our retirement investments taking the hit and our children's futures behind those.

It amazes me when I have read more good ideas on this forum from the members than I have read/heard in the news. Could it have something to do with the bi-partisan composition of the contributors? I believe so.

__________________
Steve
'87 300TD - 132K - Soon 4-Sale
'84 300D Turbo - 122K - Driving
'77 VW Type II - 77K - Restored
'08 250EX Ninja
English Bulldog (Brier) - My best friend. Passed away 12/02/04 while in my arms.

To me the one thing not being publicized in this country that is of incredible importance is the current EU progam to build the world's first fusion reactor. They have massive government support from all the EU nations, and this is such a powerful example both of the kind of thing we should be doing and an example at how hands-off capitalism is actually hurting us. Fusion is the ultimate creator of wealth - the core dream of mankind in many ways. If the EU pulls this off, the economic center of gravity of this planet will shift back to Europe. If you ask your average US citizen about it, they haven't a clue.

http://news.bbc.co.uk/2/hi/science/nature/3735017.stm

Another big question no one seems to ask is why the Dow has remained at around 10,000 for five damn years. It is a huge message- that in all those years the sum total of US assets has remained the same, and inflation is factored, it has actually shrunk. There is your future.

Until following and reading your link, I fell into the camp of "don't have a clue." Enlightening overview of Iter and its prospects for relief of fossil fuel dependency. Strange how the article throws in the quip (justifiably) about our pushing for Japan as the site rather than France due to the Iraq position.

__________________
Steve
'87 300TD - 132K - Soon 4-Sale
'84 300D Turbo - 122K - Driving
'77 VW Type II - 77K - Restored
'08 250EX Ninja
English Bulldog (Brier) - My best friend. Passed away 12/02/04 while in my arms.

I don't know what the latest news is, but I believe they want the Japanese out of the deal. Why is this being blacked out mediawise in this country? This is the second largest scientific project on the planet, second only to our own idiotic space station enterprise where the net benefit of spending billions will be a nice little place people with government connections can circle the planet, a place dedicated to figuring out how we can get humans to live in space, an utterly stupid idea in an age when we can have computers explore space for us at a tenth of the cost. This whole fusion thing is an incredible development that highlights how we are totally blowing the technological lead we have had for two centuries - resulting in us becoming a declining economy.

When I hear "Fair and Balanced" in connection with FOX I laugh and think they should be mentioning BBC. To your point, I didn't realize they wanted Japan out. As to the space station, some good will come of it yet it is questionable if it makes economic sense. Iter would pave the way toward the renewable fuel that fossil can never be. Will we see it in our lives? It appeared from the one article that it is progressing at a good rate.

__________________
Steve
'87 300TD - 132K - Soon 4-Sale
'84 300D Turbo - 122K - Driving
'77 VW Type II - 77K - Restored
'08 250EX Ninja
English Bulldog (Brier) - My best friend. Passed away 12/02/04 while in my arms.

Here is a much more recent link:

http://news.bbc.co.uk/1/hi/sci/tech/4044895.stm

IMO, we should dump our stupid "Star Wars" program and the space station and spend money on this instead. If we could get off fossil fuel the money we save will pay for twenty space stations later.

That's an interesting point. I wonder if the media black out on this is because the hated French are leading the effort, and that it will probably be built in nuclear friendly France? Like it or not, the French are the leaders in nuclear technology, which we have sorely neglected. Another example of how our stupid foriegn policies are coming back to bite us in the ass.