Thursday, January 30, 2014

Lenovo Announces a Deal to Buy IBM's x86 Server Business

Lenovo Group Ltd, a Chinese PC manufacturer, has agreed to buy IBM Corp’s x86 server business for a combination of cash and stock adding up to $2.3 billion. Beating out competitors such as Dell and Fujitsu, the Lenovo/IBM deal is currently awaiting U.S. government approval. Lenovo had previously purchased IBM’s personal computer business and the ThinkPad brand for $1.74 billion in 2005.

As yet another step forward for IBM in their shift away from hardware to software and services, the proposed deal encompasses the following IBM product lines: System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers, software, and maintenance.

Since Lenovo is primarily a PC business, the benefit of adding these product lines to their offerings is that Lenovo can diversify their revenue and enter into the datacenter. In addition to the x86 server business, this deal also includes a reseller agreement for IBM's Storwize disk storage systems, tape storage systems and certain cloud, file system, platform computing and system software products.

While IBM’s x86 server business has been experiencing declining sales, Lenovo is optimistic that they can turn this trend around and, in fact, plan for this acquisition to offset the slow decline of their PC business through its higher margins. Lenovo has already experienced some success selling servers in their home market of China due to their 2012 partnership with EMC to sell servers and storage.

The transaction is expected to close later this year, subject to the approval of Lenovo’s shareholders and the satisfaction of regulatory requirements. In the coming months, Lenovo will work in partnership with IBM to finalize this business transaction, and to plan a smooth and seamless integration for partners and customers.

Currently, HP, IBM and Dell lead the server market, accounting for over 2/3 of all server sales, so Lenovo will need to face off with these leaders to make a name for itself in the server world. However, Lenovo has already upset HP from its place as the reigning leader of PC business, so they may be up for the challenge.

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