[ltp] IBM press release on the PC and Thinkpad business

[Bob Alexander]

    IBM Press Release

*ARMONK, N.Y. and BEIJING, CHINA, December 7 and 8, 2004* - Lenovo Group=20
Limited (HKSE: 992; ADR: LNVGY), the leading Personal Computer brand in=20
China and across Asia, and IBM (NYSE: IBM) today announced a definitive=20
agreement under which Lenovo will acquire IBM=92s Personal Computing=20
division to form the world=92s third largest PC business, bringing IBM=92s =

leading enterprise-class PC technologies to the consumer market and=20
giving Lenovo global market reach beyond China and Asia.

Lenovo will have combined annual PC revenue of approximately US$12=20
billion and volume of 11.9 million units, based on 2003 business results=20
-- a fourfold increase in Lenovo=92s current PC business. Lenovo=92s new PC=
=20
business will benefit from a powerful worldwide distribution and sales=20
network covering 160 countries, global brand recognition through the=20
combination of IBM=92s highly regarded =93Think=94 brand notebook franchise=
=20
and Lenovo=92s leading brand recognition in China, enhanced service and=20
support for consumers and enterprise clients, and consumer strength and=20
market leadership in China, the world=92s fastest growing IT market. After =

the transaction is completed, Lenovo will boast leading notebook=20
enterprise offerings, leading R&D and expertise in product=20
differentiation, ensuring greater innovation and enhanced product=20
selection for customers.

As part of the transaction, Lenovo and IBM will enter a broad-based,=20
strategic alliance in which IBM will be the preferred services and=20
customer financing provider to Lenovo.

Lenovo will be the preferred supplier of PCs to IBM, enabling IBM to=20
offer a full range of personal computing solutions to its enterprise and=20
small- and medium-business clients.

Stephen M. Ward, Jr., currently IBM senior vice president and general=20
manager of IBM=92s Personal Systems Group, will serve as the chief=20
executive officer of Lenovo following completion of the transaction.=20
Yuanqing Yang, currently vice chairman, president and chief executive=20
officer of Lenovo, will serve as the chairman of Lenovo post-transaction.

Chuanzhi Liu, current chairman of Lenovo Group, said, =93As Lenovo=92s=20
founder, I am excited by this breakthrough in Lenovo=92s journey towards=20
becoming an international company. Over the past 20 years, I=92ve watched=20
Lenovo develop into the leading IT company both in China and throughout=20
Asia. Since the beginning, however, our unwavering goal has been to=20
create a truly international enterprise. From 2003, when we changed our=20
international brand name, to 2004 when we announced our partnership with=20
the International Olympic Committee, to today=92s strategic alliance with=20
IBM, I have been delighted to watch Lenovo become a truly world-class=20
company.=94

IBM will have an 18.9% ownership share in Lenovo Group and is expected=20
to recognize a gain on the sale following completion of the transaction.=20
There will be minimal financial impact resulting directly from the=20
transaction to IBM=92s fourth quarter 2004 results.

=93Today's announcement further strengthens IBM=92s ability to capture the =

highest-value opportunities in a rapidly changing information technology=20
industry," said Samuel J. Palmisano, IBM chairman and chief executive=20
officer. "Over the past several years, we have aggressively repositioned=20
IBM to be the world=92s leading provider of innovation-enabled solutions=20
for businesses and institutions of all sizes, in all industries. This=20
requires single-minded focus on the business client, and significant=20
ongoing investments in R&D and the creation of intellectual capital. At=20
the same time, the PC segment of the industry continues to take on=20
characteristics of the home and consumer electronics industry, which=20
favors enormous economies of scale and a focus on individual users and=20
buyers. Today=92s announcement further strengthens IBM=92s focus on the=20
enterprise, while creating a new global business that is better=20
positioned to capture the opportunities in the PC industry going forward.

=93In Lenovo we have a partner with powerful competitive capabilities in=20
China and Asia and in consumer and desktop PCs. We have worked very=20
carefully with Lenovo to put in place all the elements of a strong,=20
successful, enduring global alliance. IBM will continue to provide our=20
clients with outstanding IBM- and Think-branded PCs through our=20
alliance. And IBM will play an important role in the home and consumer=20
markets by creating the advanced microprocessor and open software=20
technology for the next-generation computing platform -- opportunities=20
that play to IBM's unique innovation capabilities."

While the transaction is being completed, both companies expect their=20
existing PC operations, including customer service and product=20
availability, to continue as usual. Following the closing of the=20
transaction, Lenovo expects customer service and product availability=20
will continue as usual as the two companies=92 operations are integrated.

Yuanqing Yang, current president and chief executive officer of Lenovo,=20
said, =93The development of the Internet brings both great opportunities=20
for the development of the PC industry and also significant challenges.=20
To succeed, PC companies need to have global scope, leading-edge=20
technology and highly efficient operations. Through acquiring IBM=92s=20
global PC business and forming a strategic alliance with IBM, Lenovo=20
will absorb and integrate the skills from both sides, and acquire global=20
brand recognition, an international and diversified customer base, a=20
world class distribution network with global reach, more diversified=20
product offerings, enhanced operational excellence and leading-edge=20
technology.=94

Mr. Yang added that the transaction will help establish Lenovo=92s=20
international name recognition by leveraging IBM=92s powerful global brand =

through a five-year brand licensing agreement as well as through=20
ownership of the globally-recognized =93Think=94 family of trademarks.

Founded in 1984, Lenovo was the first company to introduce the home=20
computer concept in the People=92s Republic of China, and since 1997 has=20
been the leading PC brand in China and across Asia with annual revenues=20
of approximately US$3 billion. IBM=92s PC business generated over US$9=20
billion in revenues in 2003 and offers a full range of desktop and=20
notebook PC systems.

According to IDC figures for 2003, the combined unit market share of=20
Lenovo and IBM=92s PC businesses worldwide is approximately 8%. The=20
transaction will dramatically strengthen Lenovo=92s global presence in the =

fast-growing notebook PC marketplace.

As part of the strategic business alliance, IBM will provide marketing=20
support and demand generation services for Lenovo products through IBM=92s =

existing enterprise sales force of approximately 30,000 professionals,=20
and through IBM.com. Lenovo products will also be sold through IBM PC=20
specialists that will join Lenovo. IBM Global Financing and IBM Global=20
Services, the number one IT services organization in the world with=20
powerful existing enterprise channels, will be preferred providers to=20
Lenovo for leasing and financing services, and for warranty and=20
maintenance services, respectively.

=93This is a winning transaction for customers of both companies,=94 Stephe=
n=20
M. Ward, Jr., said. =93Our two companies are a perfect fit sharing a=20
common cultural commitment to innovation, customer service and=20
shareholder value. Looking forward, Lenovo will pursue an aggressive yet=20
prudent growth strategy and will boast an industry leading international=20
management team comprising IBM=92s and Lenovo=92s existing senior executive=
s=20
and technology managers. I have great confidence in the future of this=20
new business.=94

Lenovo Group will locate its PC business worldwide headquarters in New=20
York, with principal operations in Beijing and Raleigh, North Carolina,=20
and sales offices throughout the world.

Upon completion of the transaction, Lenovo will have approximately=20
19,000 employees. Approximately 10,000 current IBM employees --- more=20
than 40% of whom already are in China and less than 25% of whom are in=20
the United States --- will join Lenovo. The transaction is expected to=20
have minimal impact in the aggregate on employment, benefits and=20
compensation in either company.

*Transaction Details*

As consideration for the transaction, IBM will receive at least US$650=20
million in cash and up to US$600 million in Lenovo Group common stock,=20
subject to a lock-up period expiring periodically over three years. IBM=20
will be Lenovo=92s second-largest shareholder, with an 18.9% interest in=20
Lenovo. Additionally, Lenovo will assume approximately US$500 million of=20
net balance sheet liabilities from IBM.

Lenovo will fund the cash portion of the consideration through internal=20
cash and debt. The equity issuance price will be HK$2.675 per share, and=20
is based on the closing price as of December 3, 2004.

The transaction is expected to be completed in the second quarter 2005=20
and requires the approval of Lenovo=92s shareholders and review by=20
relevant regulatory organizations. Lenovo Holdings, Lenovo Group=92s=20
controlling shareholder, has agreed to vote its shares in favor of the=20
transaction. It is the intention of IBM and Lenovo to secure signed,=20
local agreements after completion of additional legal requirements and=20
industrial relations processes where applicable in some countries=20
outside the United States.

The PC manufacturing portion of the International Information Products=20
Company in Shenzhen, China, which is co-owned by IBM and Great Wall, is=20
included in the transaction; IIPC=92s IBM eServer xSeries manufacturing=20
there is excluded.