IBM announced yesterday that the US government has cleared its proposed $1.25bn sale of its PC business to China's Lenovo Group.

The US Committee on Foreign Investments approved the deal after reviewing possible implications for national security, with concerns raised that the deal would give China access to sensitive technologies.

According to sources, the two companies had to make some minor modifications to gain approval, such as housing Lenovo employees working in the company's US headquarters in a different building.

The deal is expected to be wrapped up by the second quarter of this year.

IBM's decision to sell off its PC unit and exit the market reflects the changing status of IT firms these days, with companies either focusing on developing a high-volume low-margin business or moving into services.

In November, analyst firm 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 the announcement of the deal was an unknown brand outside of its home market in China, the agreement gives it an opportunity to use its low-cost assembly strengths to take the fight to market leader Dell.

Under the terms of the deal it has struck, Lenovo can use the IBM brand for five years before introducing 'Lenovo ThinkPads'.