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IBM Sells PC Division to Chinese Lenovo Group Limited

IBM, the company that transformed personal computers from a hobby to an industry with the introduction of its PC line in 1981, will bow out of the increasingly low-margin market through a partnership with the Chinese firm, Lenovo Group Limited.

In a $1.25 billion deal expected to close in the first quarter of 2005, the Chinese computermaker will pay IBM at least $650 million in cash and up to $600 million in common stock. The deal will turn IBM into Lenovo's second-largest shareholder with an 18.9 percent interest in the company. Lenovo will also assume $500 million of net balance sheet liabilities from IBM. The entire deal represents a fraction of the revenues in IBM's PC business, which is expected to gross $10 billion in 2004.

Combining IBM's and Lenovo's PC revenues for 2003 adds up to annual revenues of $12 billion, making the unit the third-largest PC business after Dell and HP.

As part of the deal, IBM will be the preferred services and customer financing provider to Lenovo. Lenovo will be the preferred supplier of PCs to IBM as IBM sells computer solutions to customers. Lenovo will also reserve the right to use the IBM brand for five years.

Stephen M. Ward, Jr., IBM senior vice president and general manager of IBM's Personal Systems Group, will become chief executive officer of Lenovo, based in New York. Yuanqing Yang, current vice chairman and chief executive officer of Lenovo, will become chairman.

IBM's departure comes a week after analysts with Gartner predicted that three of the 10 largest PC companies in the world would exit the market by 2007.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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