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IBM Sells PC Business to Chinese Firm in $1.75 Billion Deal

By Mike Musgrove
Washington Post Staff Writer
Wednesday, December 8, 2004; Page A01

International Business Machines Corp. agreed yesterday to sell its personal computer business to China's largest computer manufacturer, backing out of a market that the venerable technology giant helped pioneer and making Lenovo Group Ltd. the world's third-largest PC maker.

The $1.75 billion deal is the latest upheaval in an industry in which personal computers and the components that go into them have largely become commodities, parked on desktops everywhere and available at Wal-Mart for under $300.


_____Background_____
IBM Deal Puts Lenovo on Global Stage (The Washington Post, Dec 8, 2004)
_____Multimedia_____
Video: IBM is selling a majority stake in its pioneering personal computer business to China's biggest computer maker, Lenovo Group, for $1.75 billion in cash and stock.
_____Recent Coverage_____
PC Sector Sale By IBM Would Signal Change (The Washington Post, Dec 4, 2004)
IBM Settles Some Pension Suit Issues (The Washington Post, Sep 30, 2004)
IBM Claims Computer Speed Title (The Washington Post, Sep 29, 2004)
IBM to Open Office in Fairfax County, Creating 1,200 Jobs (The Washington Post, Sep 24, 2004)
IBM to Build Army Supercomputer (The Washington Post, Aug 3, 2004)

IBM once dominated the PC industry, but it has been eclipsed by Dell Inc. and its success in selling made-to-order computers over the Internet, as well as other rivals including Hewlett-Packard Co. IBM has steadily focused more on providing computer services to businesses.

The takeover by Lenovo is another step in China's efforts to integrate itself into the world economy, as companies hope to build their own global brands by acquiring companies internationally.

The country's power as an exporter of cheap consumer goods, and its ability to churn out electronics sold under other brand names, is unchallenged. With deals like the Lenovo-IBM combination, the nation aspires to show it can put its own products on the shelf, competing alongside the Samsungs and Toshibas of the world.

Under the terms of the deal, IBM would receive an 18.9 percent equity stake in Lenovo. The two companies would form an alliance in which Lenovo would supply computers to IBM and its clients. The headquarters for the combined company would be in New York. IBM and Lenovo executives would split the top two jobs.

IBM Chief Financial Officer Mark Loughridge said in a conference call that the agreement allows his company to serve its customers "without the volatility associated with the PC business."

IBM's role could hardly be more central to the history of the personal computer. In 1981, IBM brought to market the machine that many think of as the first PC, with software designed by what was then a largely unknown company called Microsoft.

Microsoft founder Bill Gates negotiated a deal with IBM in which his company got to keep the rights to its software and to sell it bundled with the computers of IBM competitors, which sold what became known as IBM clones.

Many regard IBM's blunder as one of the biggest in corporate history. Gates grasped what IBM did not in the critical early days of the PC revolution -- that computers are defined by software and the microprocessors that run them. By the time IBM understood the importance of an operating system and put its own software offering on the market, Microsoft's Windows had already gained popularity among users, displaced the dominance of onetime leader Apple Computer Inc., and was on the way to making Gates one of the world's richest men.


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