IBM sells PC business for $1.25bn

IBM is selling its PC business to China's largest personal computer company, Lenovo Group, for $1.25 billion (€939 million), marking the US firm's retreat from an industry it helped pioneer in 1981. Jamie Smyth, Technology Reporter, reports.

The deal, which forms the world's third-largest PC maker, is the largest overseas acquisition by a Chinese company and the latest example of a mainland firm buying a Western brand to make its mark on the world stage.

It frees IBM, which employs 4,000 people in Ireland, to focus on higher-margin businesses such as computer services and software. IBM will book a pre-tax gain of $900 million to $1.2 billion and improve gross profit margins by 3 percentage points, it said.

The deal calls for Lenovo to pay IBM $650 million in cash, $600 million in stock and assume $500 million in debt. IBM will hold an 18.9 per cent stake in Lenovo, which will relocate its PC headquarters from Beijing to New York and possibly list shares on Nasdaq or the New York Stock Exchange.

The deal makes Lenovo part of a small but growing group of Chinese manufacturers buying overseas brands. Notable among them is TCL International Holdings, which controls the RCA television brand through a joint venture with France's Thomson.

"Chinese companies want to have a bigger part of the value chain," said Mr William De Vijlder, chief investment officer at Fortis Investments.

Lenovo will jump from eighth place among PC makers to number three, combining its 2.2 per cent share with the 5.5 percent held by IBM, according to Gartner. The combined businesses had sales of $12 billion last year. Dell leads the market with a 16.7 per cent share, followed by Hewlett-Packard at 15 per cent.

Including debt, the deal values IBM's PC unit at $1.75 billion - less than Lenovo's market capitalisation of $2.56 billion, even though IBM's PC business, which UBS said was loss-making last year, is three times Lenovo's size.

IBM Ireland said the deal would have limited effect on its Irish operations. But Mr Peter O'Neill, sales & distribution director, IBM Ireland, said it should strengthen the company's offering in the PC market.

"In the short to medium term, this means no change to our product line or availability, no change in our customer service teams or sales coverage. In the long term, it will deliver the best customer service available."