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IBM sale to Lenovo clears probe

The Bush administration has completed a national security review of the planned sale of IBM's personal computer business to Lenovo (聯想), clearing the way for the deal, IBM announced on Wednesday.

The unusual scrutiny given to the IBM-Lenovo deal mainly reflects the ambivalence in Washington toward China, and its rising economic and military power.

Other Chinese companies, with their increasing wealth and global ambitions, are expected to follow Lenovo's example by shopping for acquisitions in the US.

"The lesson from the IBM experience is that the government is going to be difficult on them all," said William Reinsch, president of the National Foreign Trade Council and a former trade official in the Clinton administration.

The Committee on Foreign Investments in the US, a multiagency group, reviews purchases by overseas corporations of American businesses for any impact on national security. The IBM inquiry was a full investigation, which occurs in far less than 1 percent of cross-border deals, according to former members of the committee.

The investment committee's proceedings are secret, and IBM would not say what steps it took to address the concerns of the group, which includes representatives from the departments of homeland security, defense, justice, treasury and commerce. Two people who have been told of the investment committee's inquiry said IBM made more in the way of commitments and assurances than concessions, which might restrain its sales or product development.

The steps, they said, included agreeing to separate Lenovo's US employees, mainly in Research Triangle Park in North Carolina, from IBM workers in that industrial park who work on the development of other products, like larger server computers and software. Lenovo will absorb the 1,900 American workers in IBM's personal computer business.

The people close to the government inquiry said IBM also agreed to ensure that the computer chips and other parts in desktop PCs and notebooks were stamped with the name of their manufacturer and country of origin. Such labeling is fairly common practice for PC makers.

Steven Ward Jr., an IBM senior vice president who will become chief executive of Lenovo, said he met with more than a dozen senior officials of government agencies to explain the US$1.75 billion sale, in cash, stock and debt, which was announced last December. He said the steps IBM took to gain the approval of the investment committee would not hobble the business.

"I'm delighted with getting this approval," Ward said. "And we expect to sell Lenovo PCs and ThinkPads to businesses, governments and individuals around the globe."

Some members of the investment committee were concerned that the sale to Lenovo, which is partly state-owned, could result in technology with important military uses being passed on to the Chinese, but the people close to the inquiry said IBM addressed that concern during briefings and product demonstrations in Washington in the middle of last month.

IBM engineers and executives, they said, dismantled a desktop PC and a ThinkPad notebook for the investment committee, part by part, identifying where the components are produced and how the machines are assembled. Most IBM PCs are already manufactured in China. They contain Intel microprocessors and are assembled from chips and parts made around the world, mostly in East Asia.

The IBM-Lenovo episode should prompt Congress to review the authority of the foreign investment committee, which dates from the Cold War, said Michael Wessel, a member of the US-China Economic and Security Review Commission, a group established by Congress. Wessel believes there should be more scrutiny of such deals with Chinese companies.

Representative Donald Manzullo, a Republican, said on Wednesday that he planned to push for hearings to see if the role of the foreign investment committee should be expanded to "take more account of economic security as well as military security."

Manzullo was one of three congressmen who wrote in January to Secretary of the Treasury John Snow, who heads the foreign investment committee, urging him to conduct a full investigation of the IBM-Lenovo deal.
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