Chinese manufacturer close to buying IBM’s PC arm


6 Dec 2004

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Chinese computer manufacturer Lenovo is understood to have suspended share trading in Hong Kong today pending clarification about plans to acquire IBM’s PC division. Siliconrepublic.com has also learned that IBM has also approached technology player Toshiba with a view to selling its desktop and laptop computer manufacturing business.

Lenovo said its shares were suspended “pending an announcement regarding price-sensitive information.” Reports on Friday suggested that the manufacturer, formerly known as Legend, is negotiating a possible deal to buy IBM’s PC manufacturing business for up to US$2bn.

According to a report in last Friday’s The New York Times, IBM is trying to sell its PC business in order to focus instead on the more lucrative corporate server and computing services businesses. The company has seen its PC market share fall over the past number of years and has ceded ground to rivals such as Dell and Hewlett-Packard (HP).

The PC business represents around 12pc of IBM’s annual revenue of US$92bn. Globally IBM is in third place in terms of worldwide PC sales, according to Gartner, with 5.6pc of the world market, compared with Dell with 16.8pc and HP with 15pc. In recent months there has been mounting speculation about a consolidation of the PC industry over the next few years with both IBM and HP being tipped to sell off their PC divisions because they represent a huge drag on margins and profitability.

China is understood to be the world’s second largest PC market, selling about 13 million units last year, with growth projected at 20pc this year. Lenovo controls around 25pc of China’s PC industry but share fell 20pc this year over worries about competition from HP and Dell.

Lenovo rebranded itself last year to lay the groundwork for expansion in overseas markets and a deal to buy IBM’s PC operations would mark a major breakthrough in its plans to build an overseas business.

A potential deal could see the company issue new shares. It has about US$400m in cash and a market value of US$2.7bn.

By John Kennedy