Lenovo to be a top 10 chip buyer in 2005

China's Lenovo will become the ninth biggest chip buyer in the world after buying IBM's PC division.

Chinese personal computer maker Lenovo Group will leap to ninth place in the global chip purchasing ranks this year, thanks to its acquisition of IBM Corp.'s PC division, according to a market research group.

Lenovo's increased purchasing power affects the entire supply chain of the computer industry, and could cause changes leading to job losses and corporate decline in some places, while new areas prosper. In the U.S., for example, some companies are already starting to shift PC assembly work to Asia, where labor is cheaper.

"Assembly will gradually shift to China. [But] for the key chips and components inside a PC, it will be all the same guys," said Tony Tseng, a computer industry analyst for Merrill Lynch in Taipei.

Lenovo will require around US$4.27 billion worth of semiconductors to put inside PCs this year, up from US$1.01 billion last year, when it ranked 36th in the world, iSuppli said Wednesday. It will effectively replace IBM, which will fall to number 16 in the world, from the ninth spot last year.

Most PC parts are already made in Asia, except vital components like central processors, hard drives, and memory chips. But a lot of PC assembly is still done in the U.S. for strategic reasons, and much of that will likely shift to Asia in the coming few yeas, Tseng said.

Some companies, like Taiwan's ProMOS Technologies, are already looking to Lenovo for new business. The memory chip maker plans to invest US$2.5 million in China to make flash memory cards for personal computers.

"We decided to enter this business after Lenovo bought IBM's PC division. We want to be one of their suppliers," said Albert Lin, a vice president at ProMOS.

Lenovo completed the US$1.25 billion deal with IBM in May, transforming the Chinese company into a US$13 billion a year computer powerhouse, with 19,000 employees and expected shipments of around 14 million PCs. The Chinese PC maker is still small compared to the top companies. Hewlett-Packard, the number one chip purchaser on iSuppli's list, has 150,000 employees and took in US$79.9 billion in revenue during its 2004 fiscal year.

iSuppli predicted HP would buy about US$13.71 billion worth of chips in 2005, while Dell Inc. would purchase the second largest amount at US$12.46 billion.

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Dan Nystedt

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