Lenovo Reaches For New Direction

Beijing-based Lenovo Group, formerly known as Legend, is China's largest IT-based company. At times, though, the $3 billion-a-year maker of desktops, notebooks and peripherals has struggled to reach into new directions.

That all changed when news emerged Friday that Lenovo has agreed in principle to buy IBM's $11.5 billion PC business.

If the deal is finalized--a process that could take several months--plans call for Lenovo to make and market IBM-branded PCs and notebooks through current IBM channels, sources said. The sale would transfer most of the IBM PC unit's employees to Lenovo, and sources said it's likely that Stephen Ward Jr., the current senior vice president and general manager of IBM's Personal Systems Group, would head the new Lenovo unit.

Lenovo employs more than 9,000 people, and the company has been in operation since 1988, when it started business in Hong Kong under the name Legend, distributing IBM and AST PCs. In recent years, however, the company has grappled with everything from services to an Internet strategy, and even with its own identity. But a business agreement with IBM would be its boldest move to date.

In 2001, the company entered into an alliance with AOL on an Internet service for China. That business failed to go anywhere, and it finally pulled away from its legacy relationship with Time Warner earlier this year. And in July 2004, the company agreed to sell its small services business to Delaware-based AsiaInfo, in which took an ownership stake.

Within the past year, the company dropped its long-time Legend brand when it renamed itself Lenovo, a move that also signaled the company's aim to enter more global markets. As part of its business, Lenovo has performed a contract manufacturing role for IBM in China, a market that IBM has consistently targeted for growth opportunities since the early years of Louis Gerstner's role as IBM chairman and CEO. Last month, Chinese press reported that IBM and Lenovo had begun serious talks about entering into a joint venture to produce PCs in Asian and other international markets. Lenovo CEO Yang Yuanqing, a computer science graduate of the University of Science and Technology of China, and other company executives couldn't be reached for comment about the planned IBM PC deal.

STEVEN BURKE contributed to this story.