IBM Spins Off PC Division with Chinese Partner

Following a spate of rumors, IBM says it will spin off its personal computer business with the Lenovo Group, China's biggest maker of personal computers.

Following days of rumors, IBM late Tuesday made it official: The company said it is spinning off its personal computer business with the Lenovo Group, Chinas biggest maker of personal computers.

In confirming almost a week of speculation, IBM and China-based Lenovo Group Ltd. announced an agreement Tuesday night in which Big Blue will sell its PC division for about $1.75 billion.

The deal, which officials from both companies said will be completed in the second quarter of 2005, will make Lenovo the third-largest PC company in the world, behind Dell Inc. and Hewlett-Packard Co.

The deal creates a joint venture between Lenovo and IBM that will enable Lenovo, through the purchase of IBMs Personal Computing Division, to rapidly grow its computer business beyond China. For IBM, the agreement will enable it to get out from under its PC business but still keep a hand in the game. IBM will buy 18.9 percent of Lenovo, which will become IBMs supplier of ThinkCentre PCs and ThinkPad notebooks.

In addition, IBM, of Armonk, N.Y., will provide maintenance and financing services for the products. The new business will be headquartered in New York and will have about 10,000 IBM employees and 9,000 Lenovo workers.

Stephen Ward, vice president and general manager for IBMs Personal System Group, will become CEO of the new entity, which will have about $12 billion in revenue. Current Lenovo CEO Yang Yuanqing will be president.

/zimages/6/28571.gifJim Louderback says IBMs PC retreat is good business. Click here to read more.

In announcing the deal, Mark Loughridge, senior vice president and chief financial officer, said the alliance will enable IBM to continue to offer PC products to its customers while also expanding into emerging markets, including China. At the same time, it will free up the company to focus more on higher-end computing products, such as servers.

"This agreement … continues IBMs strategic rebalancing of our portfolio, on the high-value enterprise market segment," Loughridge said. "It moves our PC business from an element in the IBM portfolio to a key element in IBMs partner network. This partner network consists of business partners that IBM leverages to support its portfolio and integrated businesses. It extends IBMs reach and capabilities in areas where IBM clients are better served with a partner."

Lenovo will control the IBM brand for five years, and IBM will give marketing and sales support to Lenovo.

The deal with Lenovo is just the culmination of IBMs dance steps with Asian contract manufacturers and computer vendors. IBM first outsourced its desktop PC and later its server and workstation manufacturing to SCI/Sanmina in 2003, and the company merged its hard-disk-drive operations with Hitachi Global Storage Technologies Inc. to essentially exit the hard-drive market.

Next Page: How will the combined PC unit fare globally?