Big Blue's Bold Step Into China

It doesn't take a genius to see why IBM's (IBM ) sale of its $10 billion-a-year PC business to China's Lenovo Group Ltd. (LNVGY ) relieves a huge headache for Big Blue. The computer giant gets the barely profitable business off its books so it can expand profit margins and invest in more promising technologies. But there's an even bigger prize IBM executives have their eyes on. By lining up Lenovo as a strategic partner, IBM has a chance to rapidly enlarge its footprint in China, which could one day rival Europe as the world's second-biggest information technology market, behind the U.S.

The deal with Lenovo isn't your garden-variety sale. On Dec. 7, IBM unveiled plans to sell most of its Personal Systems Group to Lenovo for $1.75 billion in cash, stock, and assumed liabilities. Lenovo will relocate its world headquarters from Beijing to Armonk, N.Y., near IBM's home base, and it will be run by veteran IBM execs. Lenovo's new CEO will be Stephen M. Ward Jr., who now runs IBM's Personal Systems Group. IBM will take an 18.9% ownership stake in the new company, which will sell PCs under the IBM brand. "The rest of the PC industry is now competing with a Chinese company, with its aggressiveness on price, backed with the quality and services of IBM," says CEO Samuel J. Palmisano.