Clyde Prestowitz quoted in Investor's Business Daily (02/09/05)
IBM PC Division Sale To Lenovo Expected To Get Regulators' OK; Big Blue
is big lobbyist, PCs are not high tech, so most experts content.(A)
Byline: DOUG TSURUOKA
Washington wouldn't let China buy a U.S. firm that made on-board processors for cruise missiles.
But PCs are such a commodity -- anyone can make them -- that U.S. security would hardly be affected.
That's why most analysts think U.S. regulators ultimately will approve
IBM's $1.75 billion sale of its PC, laptop and notebook unit to Lenovo,
China's biggest PC maker.
"There really is no high tech here," said former Reagan administration
trade adviser Clyde Prestowitz. "People think those PCs and laptops are
high tech, but they're really not. Some of the parts are, but IBM
doesn't make those."
The view follows word on Jan. 28 that the Committee on Foreign Investment in the United States will review the deal.
The interagency panel can block deals like IBM/Lenovo on national security grounds. The probe could last 45 days.
Glitches could still arise due to bilateral tensions, like China's
forced landing of a U.S. surveillance plane in 2001. The deal also
spotlights larger issues like how much of a tech advantage the U.S.
would be willing to give a rival like China.
Some worry the deal would give China access to advanced research that
would let them build tiny, incredibly powerful nano-PCs in the future.
Despite such misgivings, most analysts say, Big Blue has done its homework and is reasonably sure the deal will pass.
Huge multinationals like IBM have extensive government operations
offices in Washington, work closely with U.S. embassies abroad and
usually hold informal talks with the government before big deals.
Influential lobbyists help grease the wheels with officials.
A source in Washington who asked not to be identified says IBM has
hired Brent Scowcroft, former national security adviser to Presidents
Ford and George H.W. Bush, to lobby for the deal. The Scowcroft Group
didn't return calls. Insiders say the ex-Air Force general is part of a
group of experts on China that favors close economic ties with Beijing
as the best guarantee for world peace.
"I've worked closely with the IBM crowd in the past," said Steven
Clemons, executive vice president of the New America Foundation, a D.C.
think tank. "It would be nearly impossible to imagine a circumstance in
which IBM did not consult beforehand with the Bush administration."
Analysts also expect the deal to clear because the Bush administration,
despite hiccups with Beijing, backs "constructive engagement" with
China by making it a full member of the global economy.
Security and political factors might create last-minute hurdles.
Most U.S. concern is focused on dual-use technology. This is tech that
can be transferred from the U.S. to China that has civilian and
In the 1990s, China used advanced encryption devices from the U.S. to make its military codes more secure.
PCs are different, but some analysts say the U.S. shouldn't risk
fallout with a key trading partner by denying tech that's so
Even if the IBM deal fell through, Lenovo could easily strike similar deals elsewhere.
"If Lenovo wasn't buying PC technology from IBM, they could just as
easily get it from a Japanese or European company," said Cato Institute
trade policy analyst Daniel Ikenson.
But IBM and Lenovo plan to jointly develop next-generation PC
technology, giving Lenovo access to research from top scientists at
IBM's PC center in Raleigh, N.C.
A Chinese government agency, the Chinese Academy of Sciences, owns a
third of Lenovo. The academy plays a key role in exploiting
technologies in China.
The fear is Lenovo might transfer sensitive technology it develops with IBM to China's military.
Innovations in nanotechnology, or the science of making molecule-sized
devices, also could make next-generation PCs more powerful than
anything that can be bought off the shelf today.
Hewlett-Packard announced a milestone Jan. 31 in crossbar latch
circuitry that might shrink computers to incredibly small sizes.
"PCs have obvious military applications," said William Triplett, a
former chief Republican counsel for the Senate Foreign Relations
Committee. "The question is, where do you go from here as far as
military uses for PCs?"
Chinese Firms Punished
Other issues might block U.S. approval of the deal.
The U.S. early this year punished eight Chinese firms for providing
advanced missile technology to Iran. Specific penalties weren't
disclosed. But they usually bar offending firms from doing business
with the U.S. government. They also can be denied tech export licenses.
The move affected giants: China Great Wall Industry and China North
Industry, or Norinco. Like Lenovo, both are partly owned by the Chinese
The incident hasn't affected overall U.S.-China relations. And so far
there's no reason to think the IBM/Lenovo deal might be affected.