IBM confirms PC unit sale to Lenovo

After a week of intense speculation IBM has confirmed that it is offloading its personal computing division to Lenovo Group, one of Asia’s top PC brands, in a deal worth US$1.75bn.

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By  Stuart Wilson Published  December 8, 2004

After a week of intense speculation IBM has confirmed that it is offloading its personal computing division to Lenovo Group, one of Asia’s top PC brands, in a deal worth US$1.75bn. The enlarged Lenovo will have PC revenues of approximately US$12bn and shift almost 11.9 million units a year based on 2003 business results from the two companies. Lenovo’s new PC business will benefit from IBM’s powerful worldwide distribution network covering 160 countries. Under the terms of the deal, IBM will become the preferred services and customer financing provider for Lenovo. IBM in turn will use Lenovo as its preferred PC supplier enabling it to maintain a full offering of PC solutions to its business customers. Stpehen M. Ward, currently IBM senior VP and general manager at IBM’s Personal Systems Group will become CEO of Lenovo once the transaction is complete. Yuanqing Yang, currently vice chairman, president and CEO at Lenovo will serve as chairman when the deal is closed. Chuanzhi Liu, current chairman of Lenovo Group, said: “As Lenovo’s founder, I am excited by this breakthrough in Lenovo’s journey towards becoming an international company. Over the past 20 years, I've watched Lenovo develop into the leading IT company both in China and throughout Asia.” IBM will take an 18.9% stake in Lenovo through the transaction. In total Lenovo will pay US$650m in cash and up to US$600m in Lenovo shares during the next three years. The Chinese PC giant will also assume approximately US$500m of net balance sheet liabilities from IBM. “Today’s announcement further strengthens IBM's ability to capture the highest-value opportunities in a rapidly changing information technology industry,” said Samuel J. Palmisano, IBM chairman and chief executive officer. “Over the past several years, we have aggressively repositioned IBM to be the world's leading provider of innovation-enabled solutions for businesses and institutions of all sizes, in all industries. This requires single-minded focus on the business client and significant ongoing investments in R&D and the creation of intellectual capital. At the same time, the PC segment of the industry continues to take on characteristics of the home and consumer electronics industry, which favours enormous economies of scale and a focus on individual users and buyers.” Approximately 10,000 IBM employees will join Lenovo boosting the company’s headcount to 19,000. Lenovo will also be able to leverage IBM’s global reputation through a five-year brand licensing agreements as well as through the ownership of IBM’s ‘Think’ family of trademarks. The deal is expected to close in the second quarter of 2005 and includes the PC manufacturing portion of the International Information Products Company (IIPC) in Shenzhen, China, which is currently co-owned by IBM and Great Wall. IIPC’s IBM eServer xSeries manufacturing operation at the same location is excluded from the deal. This deal allows IBM to exit a low-margin part of its business empire while retaining the ability to deliver IBM branded PC products through the terms of the alliance. “In Lenovo we have a partner with powerful competitive capabilities in China and Asia and in consumer and desktop PCs. We have worked very carefully with Lenovo to put in place all the elements of a strong, successful, enduring global alliance,” added Palmisano. “IBM will continue to provide our clients with outstanding IBM and Think-branded PCs through our alliance. And IBM will play an important role in the home and consumer markets by creating the advanced microprocessor and open software technology for the next-generation computing platform — opportunities that play to IBM’s unique innovation capabilities,” he concluded.

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