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Last Updated: Monday, 6 December, 2004, 13:27 GMT
China's Lenovo 'near to IBM deal'
A tie-up with IBM's PC business could boost Lenovo's brand
Shares in China's major computer maker, Lenovo, were suspended in Hong Kong on Monday, pending clarification about its reported interest in part of IBM.

US and Chinese media reports have said it is negotiating a possible deal to buy IBM's PC-making business for up to $2bn (1.03bn).

Lenovo said its shares were suspended "pending an announcement regarding price- sensitive information".

Lenovo has set out a strategic aim of building an international brand.

Formerly known as Legend, it rebranded itself in 2003 to lay the groundwork for expansion in overseas markets. The new name was felt to be more international in flavour.

A deal to buy IBM's PC operations would mark a spectacular breakthrough in its desire to build its overseas business and profile.

We believe the impact on Lenovo's earnings per share (would be) negative
Johnny Chan, JP Morgan

Reuters reported Lenovo and IBM were in "serious" talks, but gave no other details.

China is the world's second-largest PC market, selling about 13 million units last year. The Chinese PC market is expected to grow about 20% this year.

But fierce competition at the low end has kept profits low, and revenue growth slow, for many of the industry's players, so a big foreign deal offers one way to expand despite tight profit margin.

According to investment bank JP Morgan a Lenovo/IBM PC deal could involve the issue of new shares by Lenovo.

The company has about $400m in cash and a market value of $2.57bn.

'Corporate market'

A report in Friday's New York Times said an IBM sale would be likely to include all of its desktop and laptop computers business, and could be valued at between $1bn and $2bn.

"We believe the impact on Lenovo's earnings per share (would be) negative as... IBM's PC business has been marginally profitable and... it will be difficult for Lenovo to maintain IBM's position in the corporate market," JP Morgan analyst Johnny Chan wrote in a research note.

Lenovo controls more than a quarter of China's PC market, but its shares have fallen 20% so far this year over worries about foreign competition from the Dell and Hewlett-Packard.

It has previously said in the past it might buy a foreign brand as part of a bid to expand outside of China, following similar overseas deals by other mainland companies.

In 2003 TCL International Holdings bought the television arm of France's Thomson SA.

Shanghai Auto is buying 48.9% of South Korea's Ssangyong Motor for about $500m and is in talks with the UK's MG Rover towards setting up a venture.

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