The New York Times > Technology > Sale of I.B.M. Unit to China Passes U.S. Security Muster

The New York Times > Technology > Sale of I.B.M. Unit to China Passes U.S. Security Muster

March 10, 2005
The New York Times
March 10, 2005
Sale of I.B.M. Unit to China Passes U.S. Security Muster
By STEVE LOHR

The Bush administration has completed a national security review of the planned sale of I.B.M.'s personal computer business to Lenovo of China, clearing the way for the deal, I.B.M. announced yesterday.

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

Other Chinese companies are expected to follow Lenovo's example by shopping for acquisitions in the United States. "The lesson from the I.B.M. experience is that the government is going to be difficult on them all," said William A. Reinsch, president of the National Foreign Trade Council and a former trade official in the Clinton administration.

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

The committee's proceedings are secret, and I.B.M. would not say what steps it took to address the concerns of the group, which includes representatives from the Homeland Security, Defense, Justice, Treasury and Commerce Departments. Two people who have been told of the committee's inquiry said I.B.M. 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 American employees, mainly in Research Triangle Park in North Carolina, from I.B.M. workers there who work on other products, like larger server computers and software.

The people close to the inquiry said I.B.M. also agreed to ensure that the chips and other parts in desktop PC's and notebooks were stamped with the name of their manufacturer and country of origin. Such labeling is fairly common among PC makers.

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

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

Some committee members were concerned that the sale to Lenovo, which is partly state-owned, could result in technology with important military uses being passed to the Chinese, but the people close to the inquiry said I.B.M. addressed that in briefings and demonstrations in Washington in mid-February.

I.B.M. engineers and executives, they said, dismantled a desktop PC and a ThinkPad notebook for the committee, identifying where the components were produced and explaining how the machines were assembled. Most I.B.M. PC's are made in China. They contain Intel microprocessors and are assembled with chips and parts made around the world, though mostly in East Asia.

The I.B.M.-Lenovo episode should prompt Congress to review the authority of the investment committee, which dates from the cold war, said Michael R. Wessel, a member of the United States-China Economic and Security Review Commission, a group established by Congress.

Representative Donald A. Manzullo, an Illinois Republican, said yesterday that he planned to push for hearings to see if the committee's role should be expanded to "take more account of economic security as well as military security."