Is IBM's Lenovo Deal in Trouble?By Jeffrey Burt | Posted 2005-01-24 Email Print
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Updated: The U.S. government, concerned with national security issues, is looking into IBM's deal to sell its PC business to the Chinese computer maker, according to reports.
IBM's deal to sell its PC business to Chinese computer maker Lenovo Group Ltd. for $1.75 billion reportedly has gained the attention of U.S. regulators concerned with national security issues.
According to a report from the Bloomberg News wire service, the Committee on Foreign Investments in the United Stateswhich includes 11 U.S. agencies, including the Justice, Treasury and Commerce departments, as well as the Department of Homeland Securityis looking into the deal because of concerns that Chinese nationals might use their access to IBM's facility in North Carolina for industrial espionage activities. The news service quoted anonymous sources.
The committee, also known as CFIUS, reviews acquisitions of U.S. companies by foreign businesses.
The deal, announced in December, would merge IBM's PC business with that of Beijing-based Lenovo. The new Lenovo, which will include about 10,000 IBM employees and will be headed by Stephen Ward, currently vice president and general manager for IBM's Personal Systems Group, also will be based in Armonk N.Y., although it will have operations in Raleigh, N.C., and China. IBM also will have an 18.9 percent stake in the company.
An IBM spokesperson said the company has filed the required notice with CFIUS, and that it is cooperating with the committee. The deal needs the approval of the committee to avoid a formal review and the approval of President Bush.
CFIUS has blocked deals in the past. One example was Global Crossing Ltd.'s proposed sale of its telecommunications business to Hutchison-Whampoa Ltd., which is based in Hong Kong.
However, Roger Kay, an analyst with International Data Corp., said the issue was being blown out of proportion, either by a competitor trying to slow down the deal or a politician without sufficient information.
"One possibility is there is a typical Washington politician suspicious about the deal, about technology, and who s just questioning the deal without knowing what's at stake," said Kay, in Framingham, Mass. "In this particular case, the PC division of IBM doesn't have a lot of the interesting technology that IBM has. Things like Blue Gene and other technologies are held by other divisions in IBM. There's not much there."
IBM this fall said it would take its Blue Gene supercomputer to a wider audience in science and technology markets. IBM plans to offer other products based on Blue Gene, and it is looking at offering systems aimed at particular verticals.
Dubbed the eServer Blue Gene, the forthcoming system will run on IBM's Power processors, and offer up to 5.7 teraflops (or 5.7 trillion calculations per second). In November, IBM officials said volume sales were expected in the second quarter of 2005.
At the same press briefing, the company said it would offer customers rental use of a Blue Gene computer through IBM's Deep Computing Capacity On Demand Center.
Editor's Note: This story was updated to include information on IBM's supercomuting annoucements and comments from analysts.
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