IBM officially announced this morning in Beijing that it is selling its desktop and notebook PC business to Lenovo for a total of US$1.75 billion, signaling the exit of the PC pioneer from the industry it helped to create.

 

The terms of the deal require Lenovo to pay US$650 million in cash, and up to US$600 million in stocks. The Chinese company will also assume $500 million in liabilities from IBM.

 

The companies plan to conclude the deal by mid-2005. IBM has agreed to handle technical support, as well as financing and warranty coverage for the new PC venture with Lenovo. The deal grants Lenovo rights to use the IBM brand name for five years.

 

The deal creates an alliance between the two companies in which Lenovo will supply PCs to IBM and its clients. While Lenovo gains ownership, the IBM PC unit will retain its current management team and continue to be based in the United States. IBM will acquire a stake of 18.9% in Lenovo. IBM has agreed to maintain its stake in Lenovo for three years, with an option to extend. Stephen M. Ward Jr., IBM's senior vice president in charge of the PC unit, will serve as chief executive of Lenovo, while Lenovo's present chief and president, Yang Yuanqing, will move into the role as chairman.

 

Lenovo, which is partially owned by the Chinese government, is based in Beijing, but it plans to move its headquarters to New York. The design and development operations will remain located at the hub for IBM's PC unit in Raleigh, NC. Once the transaction closes, Lenovo would have about 19,000 employees, with about 10,000 coming onboard from IBM.

 

The sale will allow IBM to focus exclusively on businesses such as corporate computing services, software, storage, server computers, and processor chips. IBM has gradually placed greater emphasis on developing corporate consulting contracts, as the breakneck pace of PC commodification has made it increasingly difficult to make a profit.