IBM selling PC unit to China's Lenovo

IBM is selling its PC-making business to China's largest personal computer company, Lenovo Group Ltd., for $1.25 billion, marking the US firm's retreat from an industry it helped pioneer in 1981.

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.

Lenovo will jump from eighth place among PC makers to number three, combining its 2.2 per cent share with the 5.5 per cent held by IBM, according to Gartner. The combined businesses had sales of $12 billion last year.

Dell Inc. leads the market with a 16.7 per cent share, followed by Hewlett-Packard at 15 per cent.

The deal frees International Business Machines 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 three percentage points, it said.

"On paper, this goes a way to achieving what Lenovo and IBM are hoping to achieve. Now it's up to execution," said Gartner analyst Martin Gilliland.

The deal calls for Lenovo to pay IBM $650 million in cash, $600 million in stock and assume $500 million in debt.

It took 13 months to negotiate and is expected to close in the second quarter of next year.