IBM Puts The PC In Its Past

By Matthew Forney Monday, Dec. 13, 2004
    • It seems like an astonishing triumph for a Chinese company: Lenovo, China's biggest computer maker, is buying the PC division of American icon IBM. Yet Lenovo's $1.75 billion purchase of the IBM division that makes the popular laptop and desktop machines is less an invasion of the West than an escape from the East. China's domestic market, although still booming, has become a competitive cauldron as foreign companies pour in.

    Lenovo is one of a small but growing number of Chinese firms that are trying to ease profit pressure at home through global acquisitions. Guangdong-based TCL last year bought the television arm (including the RCA brand) of French electronics giant Thomson. Shanghai Automotive Industry Corp. is in talks to acquire the very English MG Rover and has already bought Korean SUV maker Ssangyong. A consortium of Chinese companies bid on the Canadian mining firm Noranda. Says Arthur Kroeber, managing editor of the China Economic Quarterly, of the dealmaking: "It's not a silly gamble, but it is high risk."

    Lenovo gets to use IBM's brand for the next 18 months on products such as ThinkPad. After that, goods will carry the combined Lenovo and IBM label. And in five years "there will be no more IBM personal computers," says Lenovo CEO Yang Yuanqing. That's fine by IBM, which gets to make a graceful strategic exit from an unprofitable commodity business. And if Lenovo proves better at selling PCs than IBM, the Yanks still benefit: IBM will keep a 19% stake.