December 7, 2004 7:27 AM PST

IBM appears close to PC deal

Chinese PC maker Lenovo Group said it is in the advanced stages of discussions to make a major tech deal--one that is widely believed to be with IBM.

The two companies are said to be negotiating a deal to form a complex joint venture that would make Lenovo the third-largest PC maker in the world behind Dell and Hewlett-Packard, but would still give IBM a hand in the PC business. The expected deal would also mark the latest round of consolidation in an increasingly mature and thus slower-growing world PC market.


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Lenovo has acknowledged only "that it is in confidential discussions with a major international company in the information technology industry in relation to a possible acquisition," the company said in a statement released Monday by the Stock Exchange of Hong Kong. If the discussions are successful and definitive agreements are reached, it said, "they may constitute a very substantial acquisition."

The sale is expected to be announced on Tuesday evening, U.S. time--that is, Wednesday morning in China, the New York Times reported Monday. The paper also said that the timing could change or that the two companies could still fail to reach an agreement. Lenovo's statement did not name its potential partner.

IBM has been moving away from so-called commodity products toward selling services, software and high-end computers, so previously reported, a deal with Lenovo would relieve it from managing its challenging and often money-losing PC group, while still giving it access to desktops and notebooks to provide to its customers. IBM could also be eyeing making inroads into the Chinese market as part of the deal. Although it might be giving up a controlling stake in its PC business by working with a local company, Big Blue could gain an edge in selling servers and services in China, a fast-growing market targeted by a number of U.S. tech giants.

A sale could also bring a substantial cash infusion. Big Blue's PC business could fetch as much as $2 billion, the New York Times said Friday when it reported that IBM has been negotiating with Lenovo, formerly known as Legend, and at least one other buyer.

IBM has declined to comment on any potential deal. Lenovo representatives did not return phone calls seeking comment.


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A deal would fit Big Blue's goal of escaping tight margins and focusing on fatter profits.

Some financial and market analysts say good things could come from such a deal.

"Based on our analysis of the potential impact and our discussions with industry contacts, we think that the reports are accurate and a deal is likely to be announced soon, which we view as a net positive" for IBM, Steven Fortuna, an analyst with Prudential Equity Group, wrote in a report on Tuesday.

The acquirer of IBM's PC business, Fortuna said, would gain use of the IBM brand, including the ThinkPad name, the intellectual property behind the company's PCs, along with greater scale and purchasing power. Meanwhile, Big Blue would free itself from losses associated with manufacturing PCs. Although IBM's Personal Systems group breaks even or is slightly profitable in a given quarter, Prudential's analysis shows that the profit comes from the cash registers and peripherals IBM sells and not its PCs, which by themselves would lose money.

"We believe a joint-venture structure in PCs makes sense between the companies, as the buyer would collaborate with IBM design teams for a period of a few years and the buyer would assume control of manufacturing," Fortuna wrote.

But many questions remain about the details of any new arrangement. Among them are how the IBM PC group's new owner would handle customer support and marketing, including how it will use the IBM and Think brand names, as well as its manufacturing strategy.

Right now, IBM manufactures ThinkPad notebook models in a joint venture with Great Wall Technology in a factory in Shenzhen,

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6 comments

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Based upon History, IBM has become a failure!
Having been involved with IBM directly for almost 28 years, I am sorry to say that IBM has become a loser! It has been very painful to watch IBM always taking the easy way out of their bad decisions. They existed the PC Hard Drive business because they failed. A large number of their drives where failing and no doubt OEMs and users alike where refusing to buy their drives. They had no choice but dump the business. They have become the elephant that can not dance.
Posted by tbeckner (56 comments )
Reply Link Flag
Will the US Government not block this move
IBM has over the years may not have been innovative and flexible enough and might also not moved as quickly as they neeeded to do in order to keep up with the competition. I am of the view that their real problem with the PC Business began when they allowed Microsoft to get ahead of them when the battle was Windows against "OS/2 Warp" Operating System. Had they done what they were suppose to do then the situation might have been different. Windows it is believed presently control over 90% of the desktop market place. With the Chinese Government involved in the Lenovo PC Business and with certain levels of restriction with regards to specific computer technologies falling into the hands of foreign companies... one wonders if the United States Government does not plan to intervene in the pending deal with this Chinese company. How long before we see the United States PC industry go the way like the automotive and steel industries?
Posted by (187 comments )
Link Flag
Based upon History, IBM has become a failure!
Having been involved with IBM directly for almost 28 years, I am sorry to say that IBM has become a loser! It has been very painful to watch IBM always taking the easy way out of their bad decisions. They existed the PC Hard Drive business because they failed. A large number of their drives where failing and no doubt OEMs and users alike where refusing to buy their drives. They had no choice but dump the business. They have become the elephant that can not dance.
Posted by tbeckner (56 comments )
Reply Link Flag
Will the US Government not block this move
IBM has over the years may not have been innovative and flexible enough and might also not moved as quickly as they neeeded to do in order to keep up with the competition. I am of the view that their real problem with the PC Business began when they allowed Microsoft to get ahead of them when the battle was Windows against "OS/2 Warp" Operating System. Had they done what they were suppose to do then the situation might have been different. Windows it is believed presently control over 90% of the desktop market place. With the Chinese Government involved in the Lenovo PC Business and with certain levels of restriction with regards to specific computer technologies falling into the hands of foreign companies... one wonders if the United States Government does not plan to intervene in the pending deal with this Chinese company. How long before we see the United States PC industry go the way like the automotive and steel industries?
Posted by (187 comments )
Link Flag
Will the US Government not block this move.
IBM has over the years may not have been innovative and flexible enough and might also not moved as quickly as they neeeded to do in order to keep up with the competition. I am of the view that their real problem with the PC Business began when they allowed Microsoft to get ahead of them when the battle was Windows against "OS/2 Warp" Operating System. Had they done what they were suppose to do then the situation might have been different. Windows it is believed presently control over 90% of the desktop market place. With the Chinese Government involved in the Lenovo PC Business and with certain levels of restriction with regards to specific computer technologies falling into the hands of foreign companies... one wonders if the United States Government does not plan to intervene in the pending deal with this Chinese company. How long before we see the United States PC industry go the way like the automotive and steel industries? Early in a game of "chess" the pawns are taken followed by the other pieces... it will be quite interesting to see if "Deep Blue" can really aid in IBM's survival further into the Time Warp!
Posted by (187 comments )
Reply Link Flag
Will the US Government not block this move.
IBM has over the years may not have been innovative and flexible enough and might also not moved as quickly as they neeeded to do in order to keep up with the competition. I am of the view that their real problem with the PC Business began when they allowed Microsoft to get ahead of them when the battle was Windows against "OS/2 Warp" Operating System. Had they done what they were suppose to do then the situation might have been different. Windows it is believed presently control over 90% of the desktop market place. With the Chinese Government involved in the Lenovo PC Business and with certain levels of restriction with regards to specific computer technologies falling into the hands of foreign companies... one wonders if the United States Government does not plan to intervene in the pending deal with this Chinese company. How long before we see the United States PC industry go the way like the automotive and steel industries? Early in a game of "chess" the pawns are taken followed by the other pieces... it will be quite interesting to see if "Deep Blue" can really aid in IBM's survival further into the Time Warp!
Posted by (187 comments )
Reply Link Flag
 

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