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Lenovo, Back for More, Buys IBM's x86 Server Business

Lenovo, Back for More, Buys IBM
January 23, 2014 10:48AM

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The purchase of IBM's x86 server business shows Lenovo is willing "to invest in businesses that can help fuel profitable growth and extend our PC Plus strategy," said Lenovo Chairman and CEO Yang Yuanqing. That strategy seeks to make China-based Lenovo the largest maker of any kind of computer, not just PCs.

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Having had great success with its purchase of IBM's PC business, Lenovo has now returned for more. On Thursday, the company announced it has entered into an agreement to buy IBM's x86 server business.

The x86 purchase includes System x, BladeCenter and Flex System blade servers and switches, as well as x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations. The price is about $2.3 billion, with $2 billion in cash and the rest in Lenovo stock.

According to The New York Times, negotiations began early in 2013 and IBM initially wanted $4 billion. Dell and Fujitsu were also interested in the division, but, since Lenovo began analyzing the purchase a year ago, it was able to more quickly offer an acceptable bid.

Strategic Relationship

During the transition, IBM will continue with maintenance for an unspecified period of time, so the changeover will not affect customers.

IBM will keep System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication/PureData appliances. The two companies will also engage in a strategic relationship that includes global OEM and reseller agreements for a variety of IBM products, including entry and midrange Storwize disk storage systems, tape storage systems, and some components of IBM software, such as Systems Director and Platform Computing solutions.

The purchased business currently employs 7,400 IBM workers globally, and the two companies said Lenovo expects to offer jobs to all of them.

Lenovo Chairman and CEO Yang Yuanqing said in statement that the purchase shows the company is willing "to invest in businesses that can help fuel profitable growth and extend our PC Plus strategy." That strategy seeks to make Lenovo the largest maker of any kind of computer, not just PCs. He expressed confidence that Lenovo could grow this x86 server business, "just as we have done with our worldwide PC business." In 2005, Lenovo bought IBM's PC division for $1.75 billion.

'A Diminishing Business'

For its part, IBM Senior Vice President and Group Executive Steve Mills told news media that the divestiture allows his company "to focus on system and software innovations," including cognitive computing, Big Data and the cloud. IBM recently announced it was investing more than $1 billion in the new IBM Watson Group, plus $1.2 billion to expand its global cloud computing data centers.

Roger Kay, an analyst with Endpoint Technologies Associates, told us that "IBM is leaving commodity hardware," focusing on higher-end hardware and, especially, software and professional services.

He said IBM "has handed Lenovo a diminishing business, and Lenovo has made the pitch that it is good" at competing in commodity computing products. Lenovo is currently the world's largest PC maker. In theory, Kay added, "this is a win-win for both companies."

Two of Lenovo's biggest competitors -- HP and Dell -- "have both PCs and servers," he pointed out, so this purchase "fills out Lenovo's line." As the PC business continues its slump, Lenovo has also expanded into tablets and smartphones.

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