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International Business Machines Corp.(IBM) has agreed to sell its personal computer business to China's largest personal computer maker, Lenovo Group Ltd., for US$1.25 billion. The sale brings to a close a major chapter in IBM's pioneering PC business that it started in 1981. The agreement calls for Lenovo to pay IBM $650 million in cash, $600 million in Lenovo Group common stock and for Lenovo to assume $500 million in net balance sheet liabilities from IBM. Lenovo took over IBM's desktop PC business, including research and development and manufacturing. IBM will own an 18% stake in the new established PC Company, and will let it continue to use the IBM brand as well as other trademarks on PC's and notebook computers. The new company will become the number three maker of PCs behind Dell Inc. and Hewlett-Packard Co. The new company will be based in New York, with principal operations in Beijing and. It is expected that 2,500 IBM employees will join the new company. Lenovo Group Ltd. has purchased $1.75 billion PCs from IBM Inc, creating the third largest personal computer vendor in the world and giving IBM greater entry into the rapidly growing Chinese market. Lenovo will gain control of IBM's Think Centre desktop and popular ThinkPad notebook brands, as well as the thousands of customers who buy those products. Customer reaction to the deal when it was first announced in December was mixed, but IBM executives were aggressive in getting out the message that the quality of the products, services and support would not change. Lenovo will operate two divisionsLenovo International, which is essentially the old IBM PC business, and Lenovo China, the company's Chinese business. The main purpose of IBM to merge with Lenovo is that to give competition to Dell Inc. (worlds largest PC manufacturer) in China.
Reason for Lenovo to merge with IBM is to enter into US market. After the merger Dell Inc. announced that it would discontinue selling their lower end PCs in China because it was not able to compete on price of local manufacturer.