IBM sells PC business to China

BEIJING - Lenovo Group has agreed to pay US$1.25 billion ($1.75 billion) for IBM's personal computer business, lifting China's largest PC maker to third in global rankings and giving it a globally recognised brand.

Lenovo will pay US$600 million in cash and US$650 million in stock, Lenovo chief executive Yuan Yuanqing said at a press conference in Beijing.

Lenovo will also assume US$500 million of debt. IBM will hold an 18.9 per cent stake in Hong Kong-listed Lenovo after the acquisition, which is expected to be completed in the second quarter.

The purchase vaults Lenovo from eighth place among PC makers, giving the company a leg up in a global market now dominated by US manufacturers Dell and Hewlett-Packard.

IBM, based in Armonk, New York, is pulling out of a business it helped create two decades ago to concentrate on services.

"It's a good move for IBM," said Jason Maxwell, an analyst at Los Angeles-based TCW Group, which owns IBM shares. "It fits with their decade-old strategy of disinvesting in those areas where they don't have an advantage."

IBM sold its hard-disk drive business in 2002 after the technology behind the products became widely available and easy to copy, leading to depressed profits.

The same thing has happened in PCs as consumers use new items such as mobile phones to access the internet, analysts say.

IBM, which made its first PC in 1981 and won orders by catering to businesses, retreated from selling its Aptiva PCs to retailers in the US in 1999 and instead decided to sell over the internet.

Lenovo, based in Beijing and formerly known as Legend, will reap benefits of the world's third-most recognised brand - IBM's brand name is worth US$53.8 billion, according to a survey by Interbrand.

- BLOOMBERG