IBM's decision to sell its PC business to Chinese manufacturer Lenovo will increase competition in the market and drive down prices, say experts.

Just last month, analyst Gartner forecast that slower growth rates and reduced profit margins in the PC industry will result in vendor consolidation, with three of the top 10 PC manufacturers exiting the market by 2007.

For Lenovo, which until last month was an unknown brand outside of its home country, the $1.75bn deal provides an opportunity to use its low-cost assembly strengths to take the fight to market leader Dell.

'By combining our personal computing division with its own, highly complementary business, Lenovo will be much better positioned to capture the opportunities in the PC industry,' said IBM chief executive Sam Palmisano, in a memo to staff.

Under the terms of the deal, Lenovo can use the IBM brand for five years, and the company leaps to third place in the sector.

'The company must retain the status of IBM's notebooks while developing a range of desktops that can challenge Dell's,' said Brian Gammage, research vice president at Gartner's client platforms group.

'Its immediate goal is to retain the IBM core business in enterprise notebooks and use the IBM brand in other geographies to grow volume business.'

Martin Gilliland, principal analyst at Gartner's hardware and systems research group added: 'Competitors will have to accept that the Chinese market will become even harder to crack, while international markets will now include a player with a cost structure that can compete with Dell's.'

For IBM, dropping the low-margin PC business will continue to make it a more focused provider of IT services, as well as improving its profitability.

'IBM wants to move up the value chain, and sees its future in higher end consultancy and IT services, as well as the higher value hardware and software products, which appeal to its core corporate customers,' said Ovum analyst Douglas Hayward.

'In today's marketplace you are either an Accenture or a Dell. It's just become even more difficult to justify being both,' he said.

And observers are already questioning what role HP will play in the future of the PC market.

HP chief executive Carly Fiorina last week reiterated that the company's strength lies in its wide portfolio of products and services.

She says the company considered breaking up HP three times in the past 'and each time the board came to the same unanimous conclusion' not to.

'So many of the growth opportunities that are going to drive the business going forward now depend on the power of this portfolio,' she said.

But Hayward has doubts about the viability of HP's strategy.

'IBM's decision to quit the PC arena merely reinforces our concerns,' he said.

IBM PC timeline

1981 On August 12, IBM introduces the 'IBM PC' that will become the industry standard. The system, starting at $1,565, shipped with a 4.77 MHz 8088 Intel processor and 16KB of RAM and runs Microsoft's MS-DOS operating system. The system comes with VisiCalc's electronic spreadsheet software, the PC's 'killer app' for years to come.

1983 Compaq introduces the first IBM PC clone, followed later by HP and Digital (all three companies would eventually merge into a single company).

1986 IBM releases the IBM PC Convertible, replacing the chunky suitcase-sized IBM Portable that it launched in 1984. The system eventually morphs into the popular ThinkPad range of notebook computers.

1987 IBM announces its Personal System/2 (PS/2) computer, shipping a million units within six months - it took more than two years to ship a million units of the original IBM PC.

1987 To support the PS/2, IBM introduces the OS/2 operating system, which gives users access to multiple applications.

1991 IBM rolls out the IBM Personal System/2 L40 SX laptop, weighing 7.7 pounds and featuring a full-sized keyboard and 10-inch display.

1992 The IBM Personal Computer Company becomes a separate unit, focusing exclusively on developing PC products.

1992 The ThinkPad 700C notebook debuts, with a 25MHz Intel 486 processor, 4MB of RAM and an 80MB hard drive. The device also introduces the TrackPoint pointing device in the middle of its keyboard, a feature that will come to define IBM's notebooks.

1995 IBM's PC offerings hit the Pentium age with a system based on a 133MHz version of the Intel chip.

2002 IBM sells its hard disk operations for $2.05bn to a standalone company under majority ownership of Hitachi. Hitachi will assume full ownership in 2005 after making a series of payments to IBM.

2003 The 20 millionth IBM ThinkPad is sold.

2004 IBM, the third biggest PC maker in the world, decides to sell its PC division to Lenovo for $1.75bn. Prior to the sale, Gartner ranks the Chinese firm as the world's ninth largest PC vendor.