Chinas Lenovo Acquires IBM unit


2004.12.09
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HONG KONG--Chinese computer giant Lenovo has acquired the personal computer division of IBM in a bold move aimed at gaining access to global markets.

"Since the beginning...our unwavering goal has been to create a truly international enterprise," Lenovo group chairman Liu Chuanzhi told reporters as the US$1.75 billion cash and equity deal was announced.

Under the terms of the deal, Lenovo is paying US$1.25 billion in cash and stock for its majority stake in the merged personal computer entity, while assuming US$500 million worth of debt and liabilities.

IBM will become Lenovo's second-largest shareholder, taking an 18.9 percent stake in the company, with the purchase to be completed by the second quarter of 2005.

Since the beginning...our unwavering goal has been to create a truly international enterprise.

"This acquisition will allow Chinese industry to make significant inroads on its path to globalization,'' Liu told a packed news conference in Beijing.

Lenovo shares fell by more than three percent in Hong Kong on the news, triggered by worries that IBM had offloaded a major cost center onto the Chinese company as the climate for PC manufacturers is looking increasingly bleak.

Major symbolic stakes

But the move is still seen has having tremendous symbolic value for corporate China, anxious to make its entrance onto the stage of major global players.

"China is gradually moving towards the higher end of technology because of rapid economic development in the past couple of years," Zhejiang University economics professor Ye Hang told RFA's Mandarin service.

"I think that we will soon be seeing more alliances between multinational corporations and domestic Chinese companies," he said, adding that Lenovo had been attracted by IBM's access to the global supply chain and sales networks.

An 8 percent market share

Founded in 1984, Lenovo, formerly known as Legend, was one of the first companies to introduce the PC to China, and since 1997 has become a leading brand, with annual revenues of approximately US$3 billion. IBM's PC business generated more than US$9 billion in revenues in 2003 and offers a full range of desktop and notebook PC systems.

According to industry figures for 2003, the combined Lenovo and IBM share of the PC market worldwide will be around 8 percent.

An industry analyst at the Shenzhen-based retailer Causeway Bay Group said the deal could prove highly successful for Lenovo. "Lenovo has on its side access to the huge domestic Chinese market and a background of doing business here, while IBM has huge international networks...When those two are put together, the circle is complete," Zhao Weiye told RFA's Mandarin service.

"Not only will IBM be able to gain access to the Chinese market for its PCs, but Lenovo will be able to find markets all over the world," Zhao said.

But he added that major computer companies have been failing at the rate of two per year in recent years. "There's a big question mark over whether Lenovo will be able to make a success of this part of IBM's business in which it's getting harder and harder to turn a profit," Zhao said.

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