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IBM Sells Its Personal Computing Business to China's Lenovo

Posted on: Tuesday, 1 February 2005, 03:00 CST

IN THE WAKE OF IBM'S SALE OF its PC business, at least one user is questioning the value of continuing to purchase Big Blue's personal computers.

"If they're not investing in it, why should we?" said Tony Lopes, the VP of finance and administration for Federal White Cement in Woodstock, Ont.

Under the US$1.2 billion cash and stock sale - expected to be approved this spring by shareholders - Lenovo Group Ltd. will acquire IBM's entire PC division. The total value of the deal is US$1.75 billion including debt. The division has lost money in the past three years, according to a Dec. 30 filing with the U.S. security and Exchange Commission. In the first six months of 2004 alone, it lost US$139 million.

IBM will take an 18.9 per cent stake in Lenovo, becoming its second largest shareholder. The deal will quadruple Lenovo's personal computing business, the partners figure.

Full range of PCs

And it will be a partnership: IBM will be the preferred services and customer financing provider to Lenovo, while the Chinese company will be the preferred supplier of PCs to IBM. That means Big Blue will still be able to offer a full range of computer solutions, it said. Lenovo Group will move its PC business worldwide headquarters to New York and add some 10,000 IBM employees - about 40 per cent of whom are already in China. Stephen Ward, the vice-president of IBM's Personal Systems Group, will become Lenovo's CEO. Manufacturing of IBM-branded desktop and laptop products will continue. However, over the next five years the brands on those products will be phased out.

IBM laptops are cutting edge, Lopes said, and he would need reassurance that R&D would continue with Lenovo before he invests in them in the near future.

He would also need assurance that existing systems would continue to be supported.

Marc Perrella, vice-president for the information technology and communications group at IDC Canada in Toronto, doesn't think the deal will necessarily mean customers will shy away from IBM PCs. "If you look at IBM's clients, they're actually quite loyal, and they typically go back to IBM - however they may take this opportunity to re-evaluate who they are buying PCs from," he said. "There are opportunities for Dell and HP to leverage the situation."

IBM PC DIVISION LOSSES

* According to a Dec. 30 filing with the sec, IBM's PC division hasn't made a profit in the

* It lost US$397Min2001, US$171M in 2002 and US$258M in 2003. It lost US$139M in the first half of 2004.

By Poonam Khanna and Howard Solomon

Computing Canada

Copyright Plesman Publications Ltd. Jan 14, 2005

Source: Computing Canada

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