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Lenovo buys another slice of IBM for $2.3 billion

Posted: 24 Jan 2014  Print Version  Bookmark and Share

Keywords:x86  server hardware  acquisition 

Hong Kong-listed Lenovo issued a surprise suspension notice at 9:00am yesterday to temporarily stop trading. This was followed by the company's announcement of a $2.3 billion acquisition of IBM's x86 server hardware and related maintenance services. About $2 billion of the overall price will be paid in cash, and the balance in Lenovo stock. The announcement comes after several months of speculation, involving Lenovo, Fujitsu and IBM.

Lenovo's shopping basket includes System x, BladeCenter, and Flex System blade servers and switches. It will also include x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, and blade networking and maintenance operations. IBM said it will keep its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication and PureData appliances.

The deal comes nine years after the Chinese OEM bought IBM's ThinkPad PC line for $1.75 billion. Since 2012, Lenovo has become the world's leader in PC sales, collaborating with IBM in many areas.

Analysts pleased
Some analysts praised as a win/win deal IBM's decision to sell its Intel-based server business to Lenovo for $2.3 billion. They agreed that the move lets IBM focus on its higher-margin Power and proprietary servers, while Lenovo extends its market for high-volume x86-based systems that have arguably become high-tech commodities.

IBM's PC server unit posted seven straight quarters of losses as customers increasingly switched to public cloud computing services. The unit posted a $26.4 million loss after taxes for 2013.

"With the right strategy, great execution, continued innovation and a clear commitment to the x86 industry, we are confident that we can grow this business successfully for the long-term, just as we have done with our worldwide PC business," Yang Yuanqing, chairman and CEO of Lenovo, said in the release.

The [x86] server business really aligns more with Lenovo's business model.

Steve Mills, senior vice President and group executive for IBM Software and Systems, said in the release: "This divestiture allows IBM to focus on system and software innovations that bring new kinds of value to strategic areas of our business, such as cognitive computing, Big Data and cloud."

According to Gartner, IBM had the second-largest share of the $12.3 billion worldwide server market in third quarter, with 22.9%. HP ranked first, with 27.6%.

IBM recently announced that it will invest more than $1 billion in the new Watson analytics group and $1.2 billion to expand its global cloud computing footprint.

"I think this is a good deal all around," Linley Gwennap, founder and principal analyst at the Linley Group, told us. "The [x86] server business really aligns more with Lenovo's business model. For IBM, this allows them to focus more on the higher value server products that use their Power processors, rather than these lower cost commodity servers."


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