China's Lenovo May Be in Talks With IBM on PC Unit

HONG KONG – China's biggest computer maker said Tuesday it is in acquisition talks with a major international technology company, a disclosure which comes amid reports it might buy IBM Corp.'s (IBM) personal computer business.

Hong Kong-listed Lenovo Group Ltd. (search) didn't name the company with which it is holding talks in a disclosure statement released by the Hong Kong's stock exchange Tuesday, saying the negotiations were confidential.

But it characterized the company as a "major international company in the information technology industry."

The Wall Street Journal, citing unidentified sources, reported Tuesday that IBM and Lenovo plan to create a new company that would own IBM's PC business with Lenovo holding a majority stake. The deal could be announced as soon Tuesday, the newspaper said.

The potential deal was first reported Friday by the New York Times.

Lenovo is expected to pay as much as $2 billion for the majority share of IBM's PC business, the Journal said, citing people familiar with the negotiations. The new company would be majority owned by Lenovo, with IBM holding on to a minority stake small enough that its revenues and profit or loss would be excluded from operating results, the report continued.

Once a key player in popularizing the personal computer, IBM is now increasing its focus on consulting, outsourcing and software, analysts say. Its PC business now accounts for a small portion of its total sales and profits, according to analysts.

Lenovo's reported interest in IBM's PC unit comes as it faces increased competition from foreign companies such as U.S. computer making giant Dell Inc. (DELL).

Lenovo, formerly known as Legend, has expanded into cell phone manufacturing and information technology services, but has said it wants to focus on its core computer business again.

Trading of Lenovo on the Hong Kong bourse was suspended Monday pending announcement of the talks, and Lenovo continued the suspension Tuesday pending further announcements on the possible acquisition.

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

IBM shares, meanwhile, gained 2 cents to $97.69 on the New York Stock Exchange (search).