Concerns mount over Lenovo's IBM deal

The acquisition of IBM's PC business by China's largest PC maker, Lenovo Group, may pose a threat to U.S. national security and deserves a closer review by the U.S. Congress and government agencies before a decision is made on whether or not to approve the deal, three U.S. lawmakers said this week.

Their concerns were set out in a letter sent Wednesday to U.S. Treasury Secretary John Snow and signed by three Republican congressmen - House International Relations Committee Chairman Henry Hyde, House Armed Services Committee Chairman Duncan Hunter and House Small Business Committee Chairman Don Manzullo.

Specifically, the congressmen worried that the $1.75 billion deal could transfer advanced technology and corporate assets to the Chinese government, along with licensable or export-controlled technology, and may result in certain U.S. government contracts involving PCs being fulfilled by the Chinese government, according to a statement released by the House Armed Services Committee.

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The acquisition of IBM's PC business by China's largest PC maker, Lenovo Group, may pose a threat to U.S. national security and deserves a closer review by the U.S. Congress and government agencies before a decision is made on whether or not to approve the deal, three U.S. lawmakers said this week.

Their concerns were set out in a letter sent Wednesday to U.S. Treasury Secretary John Snow and signed by three Republican congressmen - House International Relations Committee Chairman Henry Hyde, House Armed Services Committee Chairman Duncan Hunter and House Small Business Committee Chairman Don Manzullo.

Specifically, the congressmen worried that the $1.75 billion deal could transfer advanced technology and corporate assets to the Chinese government, along with licensable or export-controlled technology, and may result in certain U.S. government contracts involving PCs being fulfilled by the Chinese government, according to a statement released by the House Armed Services Committee.

Lenovo is a public company listed in Hong Kong. However, Lenovo's parent company and largest shareholder, Legend Holdings, is closely tied to the Chinese Academy of Sciences, a government institution that manages national scientific research efforts in China and is directly overseen by the State Council - China's highest administrative body.

"Given the important issues at stake, Congress and other federal agencies need more time to evaluate the process and provide comments on the sale," the congressmen said in the statement, noting that the Dec. 8 announcement of the deal took place when Congress was not in session.

In response, Angela Lee, a spokeswoman for Lenovo, said, "Lenovo continues to cooperate with the routine review (of the deal) by all regulatory bodies."

That may not be enough to avoid an extended review of the deal by the U.S. Treasury Department's Committee on Foreign Investment in the United States (CFIUS). The lawmakers' call for additional time to review the Lenovo deal now makes an extended review by CFIUS "very likely," said Helen Lau, an analyst at Celestial Asia Securities Holdings, in Hong Kong.

That doesn't bode well for Lenovo. There are several possible outcomes to an extended investigation, including U.S. government approval for the acquisition, Lau said. However, a more likely outcome, according to Lau, is that the government will allow most of the deal to go through but block the part that involves the sale of IBM's R&D operations. That would reduce Lenovo's ability to compete against rivals like Dell and HP, which currently spend more on R&D.

"Without IBM's R&D support, it is hard for Lenovo to compete against Dell," Lau said.

Treasury Department officials were not immediately available for comment.

Lenovo's acquisition of IBM PC's business was not expected to provoke a debate over U.S. national security. The initial reaction among analysts and users was generally positive. Even more so in China, where the official People's Daily newspaper declared in an editorial that the deal was a cause for "unlimited reverie" and a "perfect combination." But a range of concerns soon emerged.

The IDG News Service is a Network World affiliate.