IBM Press Release

IBM Press Release

ARMONK, N.Y. and BEIJING, CHINA, December 7 and 8, 2004 - Lenovo Group
Limited (HKSE: 992; ADR: LNVGY), the leading Personal Computer brand in
China and across Asia, and IBM (NYSE: IBM) today announced a definitive
agreement under which Lenovo will acquire IBM’s Personal Computing division
to form the world’s third largest PC business, bringing IBM’s leading
enterprise-class PC technologies to the consumer market and giving Lenovo
global market reach beyond China and Asia.

Lenovo will have combined annual PC revenue of approximately US$12 billion
and volume of 11.9 million units, based on 2003 business results -- a
fourfold increase in Lenovo’s current PC business. Lenovo’s new PC business
will benefit from a powerful worldwide distribution and sales network
covering 160 countries, global brand recognition through the combination of
IBM’s highly regarded “Think” brand notebook franchise and Lenovo’s leading
brand recognition in China, enhanced service and support for consumers and
enterprise clients, and consumer strength and market leadership in China,
the world’s fastest growing IT market. After the transaction is completed,
Lenovo will boast leading notebook enterprise offerings, leading R&D and
expertise in product differentiation, ensuring greater innovation and
enhanced product selection for customers.

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

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

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

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

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

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

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

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

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

Mr. Yang added that the transaction will help establish Lenovo’s
international name recognition by leveraging IBM’s powerful global brand
through a five-year brand licensing agreement as well as through ownership
of the globally-recognized “Think” family of trademarks.

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

According to IDC figures for 2003, the combined unit market share of Lenovo
and IBM’s PC businesses worldwide is approximately 8%. The transaction will
dramatically strengthen Lenovo’s global presence in the fast-growing
notebook PC marketplace.

As part of the strategic business alliance, IBM will provide marketing
support and demand generation services for Lenovo products through IBM’s
existing enterprise sales force of approximately 30,000 professionals, and
through IBM.com. Lenovo products will also be sold through IBM PC
specialists that will join Lenovo. IBM Global Financing and IBM Global
Services, the number one IT services organization in the world with
powerful existing enterprise channels, will be preferred providers to
Lenovo for leasing and financing services, and for warranty and maintenance
services, respectively.

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

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

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

Transaction Details

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

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

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

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

IBM and Lenovo: General Q&A
Q1. What did you announce today?
      An agreement that creates a powerful new competitor in the IT
      industry.
      Under the agreement Lenovo will acquire IBM’s PC business and the two
      will form a broad marketing alliance. IBM will sell the products of
      the new Lenovo through its global sales organization, and Lenovo PCs
      will be integrated into IBM’s end-to-end solutions.
      Once the agreement is finalized, this new Lenovo would employ roughly
      19,000 people and deliver the widest range of personal computing
      products and technologies to large enterprises, small- and
      medium-sized businesses and consumers, worldwide.
Q2. What’s the significance of this agreement to the global PC market?
      Separately, these companies possessed outstanding development,
      manufacturing, marketing and customer care capabilities, with
      targeted expertise in the enterprise (IBM) and consumer (Lenovo)
      markets.
      Those strengths will be leveraged by a new, growth-oriented global
      enterprise that’s strategically focused on the PC space.
      Lenovo’s heritage as China’s largest PC maker and its leadership in
      that country’s fast-growing commercial desktop and consumer segments
      position it well to pursue opportunities in emerging markets.
      That’s especially true in China, which is the largest emerging
      market.
Q3. Will people lose their jobs?
      The two companies’ structures are highly complementary so we expect
      the need for rebalancing to be minimal.
      Additional details will be available as the transition progresses.
Q4. Exactly what moves from IBM to Lenovo under this agreement?
      About 10,000 people will move from IBM to Lenovo.
      All relevant tangible equipment and other resources used in IBM’s PC
      business will also move from IBM to Lenovo.
      Most of the IBM PC division’s physical work locations around the
      world – the buildings themselves — are leased.
Q5. Who is Lenovo?
      Lenovo, which is listed on the Hong Kong stock exchange, is one of
      China’s largest companies.
      Created in 1984, it was the first to introduce the home computer
      concept in China. Since 1997 Lenovo has been the leading PC brand in
      China and across Asia, with annual revenues of approximately $3
      billion.
      Lenovo is principally engaged in the manufacture and sale of branded
      personal computers and handheld devices.
      With this agreement, Lenovo achieves a size that would easily put it
      into the top ranks of Fortune Magazine’s annual computer industry
      listing.
Q6. When will the transaction be completed?
      The agreement is expected to be finalized no later than the second
      quarter of 2005.
      It requires the approval of Lenovo shareholders, and there will also
      be certain regulatory reviews.
      Compliance with certain legal requirements and industrial relations
      processes, and the signing of local agreements, are also necessary in
      some countries.
Q7. Where will Lenovo be headquartered?
      As a global business, the new Lenovo will be geographically
      dispersed, with people and physical assets located worldwide.
      Its worldwide headquarters will be in New York, with principal
      operations in Beijing and Raleigh, N.C., sales offices in every
      geography and research centers in China, the U.S. and Japan.
Q8. Who are the new company’s senior executives?
      Yang Yuanqing – Chairman of the Board. (He’s currently CEO of
      Lenovo.)
      Steve Ward – Chief Executive Officer. (He’s currently IBM senior vice
      president and general manager of IBM’s Personal Systems Group.)
      Fran O’Sullivan – Chief Operating Officer. (She’s currently general
      manager of IBM’s PC division.)
      Mary Ma – Chief Financial Officer. (She’s currently CFO of Lenovo).
Q9. Will Lenovo’s products carry the IBM logo and established IBM branding,
like the ThinkPad name?
      The ThinkPad name is being transferred to the new Lenovo.
      Initially, Lenovo will market products with both IBM and Lenovo
      branding.
      Over time, as the new Lenovo works to establish brand identity, its
      product line will adopt the new company’s own, distinct branding.
      The branding will change from IBM to Lenovo in phases over a
      five-year period. (Current IBM branding for 18 months; IBM & Lenovo
      co-branding in months 18-40; transition to unique Lenovo branding
      with an IBM tagline describing our technical contribution for months
      40-60.)
Q10. Why is IBM finally getting out of the PC business?
      We don’t have to own or operate a PC company to provide PCs as part
      of our end-to-end solutions.
      This helps ensure that we’re positioned to give clients the most
      advanced business PCs in the industry, through a company that’s
      sharply focused on the PC space.
      The new Lenovo will be much more competitive globally. We believe the
      most promising growth path for the business includes both consumer
      and enterprise products. IBM isn’t interested in re-entering the
      consumer business, but Lenovo is committed to investing, growing and
      winning in all segments of the PC industry.
Q11. How will your PC business be operated in the interim?
      Until the deal closes next year, IBM will continue to generate and
      book PC business as usual.
      When the transaction is completed, the new Lenovo will continue to
      operate under existing IBM terms and conditions that transfer with
      IBM’s PC business.
      All existing product roadmaps will remain intact for at least 18
      months.
      Lenovo will pay IBM a fee for marketing support and demand generation
      services.
      In addition, IBM expects to derive revenue from ongoing services
      warranty work and customer financing support of Lenovo’s operations.
Q12. Will IBM still be the world’s biggest computer company?
      Yes. Figures for 2004, while not yet final, will reinforce this
      market position.