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Lenovo buys $614 million stake in PCCW digital units for IT services growth

(Reuters) - Chinese personal computers maker Lenovo Group is acquiring stakes worth $614 million in two digital units of Hong Kong telecoms firm PCCW Ltd, betting that a post-COVID recovery and hybrid work model will drive IT services demand.

Lenovo, the world's largest maker of personal computers, said in a statement late on Tuesday it will buy an 80% stake in Digital Era Enterprises and a 20% stake in PCCW Network Services, a holding company for a unit that provides technology solutions to government entities in Hong Kong.

The deals would diversify its businesses and were important for the company's long-term development, Lenovo said.

"The transaction allows the company to expand its IT services capabilities, its suite of service offerings as well as the geographic and vertical coverage of customers and partners," it said.

Lenovo, which last month warned of a hit to shipments in the short term due to China's COVID-19 lockdowns exacerbating chip shortages, will pay PCCW $513.6 million in cash and issue 86.4 million new shares, or a 0.71% stake, at HK$9.025 a piece.

PCCW, controlled by Hong Kong tycoon Richard Li, anticipates a gain of $100 million from the disposal, it said in a separate filing, adding it will use the proceeds to invest in growth areas and to repay debt, among others.

Shares of Lenovo slipped as much as 2.6% on Wednesday to HK$7.37, while PCCW gained 2.4% in its best day since March 16. That compared with a 1% gain in the broader market.

Last month, Lenovo posted an 18% jump in revenue to $71.6 billion for the fiscal year ended in March, of which its Infrastructure Solutions Group (ISG) business saw a 13% growth in revenue to $7.1 billion, and its newly formed Solutions and Services Group (SSG) saw a 30% growth to $5.4 billion.

Lenovo said SSG, which benefits from growing IT services demand, is the key to driving sustainable growth for the company.

(Reporting by Sameer Manekar in Bengaluru and Donny Kwok in Hong Kong; Editing by Muralikumar Anantharaman)