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Last Updated: Tuesday, 7 December, 2004, 06:33 GMT
Lenovo confirms acquisition talks
Lenovo headquarters in Beijing
Lenovo controls more than a quarter of China's PC market
China's major computer maker, Lenovo, has confirmed it is in talks with a major IT company, believed to be IBM, about a potential acquisition.

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

Lenovo shares were suspended in Hong Kong on Monday, and the firm also asked for them to be suspended on Tuesday.

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

IBM could... be acting to create a more viable Lenovo in an attempt to block Dell and HP's rapid expansion in (Asia)
Ben Reitzes, analyst at UBS Warburg

"Such discussions are at an advanced stage but no definitive agreement or letter of intent has yet been signed," Lenovo said in a statement.

"There can be no assurance that any such agreement or letter of intent will be signed."

Meanwhile a spokesman for IBM refused to discuss Lenovo's statement, or to comment on previous reports it is in talks to exit PCs.

Corporate clients

The US giant is now the third-biggest PC maker behind Dell and Hewlett Packard.

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.

Ben Reitzes, an analyst at UBS Warburg, said in a note to clients IBM may structure any deal so it can retain the ability to sell PCs to its corporate clients.

"IBM could also be acting to create a more viable Lenovo in an attempt to block Dell and HP's rapid expansion in (Asia)," Mr Reitzes said.

Lenovo was formerly known as Legend, and 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.

Shares fallen

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.

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.

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