IBM forms another venture in China--with Lenovo rival

What would happen if China's PC archrivals were to inadvertently end up sharing a factory?

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By Michael Kanellos and Wang Dan

IBM just can't get enough of China these days.

Less than a week after Big Blue announced plans to sell its PC and notebook division in a complex transaction to Lenovo, IBM said it will create a joint venture to manufacture servers in China with Lenovo's archrival, Great Wall Computing.

The IBM-Great Wall venture--which will be called the International Systems Technology Company--is essentially a retrofit of an existing venture between the two companies called International Information Products. Currently, IIP makes ThinkPads, servers and other computers for IBM. Under the Lenovo deal, however, Lenovo will assume IBM's interest in the IIP factory in Shenzhen. If left untouched, that would mean the two sharpest competitors in China's PC industry would inadvertently wind up sharing a factory.

Under the IBM-Great Wall venture, Big Blue will buy Great Wall's portion of IIP, sell it to Lenovo and create the ITSC. Last week, IBM acknowledged that the situation hadn't been completely ironed out, but over the weekend sources out of Beijing began to confirm portions of the new deal.

IBM will own 80 percent of the new venture.

Though opinions range wildly about how well IBM's deal with Lenovo will work, the Great Wall deal shows that joint venture diplomacy isn't always easy. Lenovo also makes servers under its own name. As a result, IBM will be in a situation of promoting Lenovo-made ThinkPads as its preferred notebook while selling servers that compete with Lenovo's.

Wang Dan of ZDNet China reported from Beijing.