Lenovo finalises acquisition of IBM's x86 server business

Lenovo believes the company still has a place in the PC market, and says the acquisition of IBM's x86 server business will play a role in helping it grow in that space.
Written by Aimee Chanthadavong, Contributor on

Lenovo has announced that it will be closing the acquisition deal of IBM's x86 server business on Wednesday, October 1.

As part of the $2.3 billion acquisition, Lenovo is acquiring System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking, and maintenance operations. IBM will retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, PureApplication, and PureData appliances.

Lenovo will also become a global OEM and reseller for IBM's storage gear, covering IBM's Storwize disk systems, tape, General Parallel File System software, SmartCloud Entry offering, and elements of IBM's system software portfolio, including its Systems Director and Platform Computing products.

Speaking to ZDNet, Matt Codrington, Lenovo Australia and New Zealand managing director, said the acquisition will make the company the third-largest player in the $42.1 billion global x86 server market globally, and the third-largest player in the Australia and New Zealand market.

"We'll be taking an already formidable business to the next level. Our global plan is to achieve AU$5 billion in revenue for this division, and higher profitability than our PC business within the first year," he said.

"They're aspirational targets, but achievable. All of this plays into our PC strategy, which is really delivering an end-to-end solution from the smartphone all the way to the datacentre, and everything in between. To ensure we make the most of this acquisition locally, we've committed AU$5 million to fuel the growth within the business."

To mark the acquisition, the company will be relocating to a new head office in Chatswood, Sydney. Its Melbourne office will also be moving to larger premises. Lenovo will be opening new offices in Canberra and Brisbane, which Codrington said will expand the company's presence in those regions.

The global team of the IBM x86 server business will be organised under Lenovo's enterprise business group. Adalio Sanchez led the x86 server business at IBM, and will continue in this capacity at Lenovo, as senior vice president of Enterprise Systems, reporting to Gerry Smith.

"We are only working with legitimately installed software products like Microsoft. We've got very strict controls in our supply chain, because it's one of the biggest in the world."

Tony Smith, Lenovo Australia and New Zealand enterprise business group director, said without disclosing specific numbers that the company will locally be growing the headcount with the acquisition. He noted that staff from across sales, technical, marketing, and business operations support division throughout Australia and New Zealand of IBM's x86 server team will be moving to Lenovo.

"We're very much looking to the scale and resources it provides our business to fuel our growth. We've been working quite diligently for a seamless transition to our partners and customers," he said.

"We've been going through quite a lot of planning for the integration of our business, and it will see a quick transition turnover of a lot of our business systems that support how we operate. We find it will bring a lot of benefits to our customers and partners, giving them a larger access to a pool of offerings and solutions, and we look to see that as creating new opportunities to deliver value into them as we go on.

"The plan for us is to grow the market share within Australia and New Zealand in the market space inside the systems that fuel datacentres inside our cloud providers."

The acquisition recently got clearance from both Chinese and US regulators. Initially, US regulators were concerned that national security may be weakened, and "Chinese spies" may be able to access the Pentagon's servers, which belonged to IBM. Under the terms of the acquisition, IBM will continue to provide maintenance of these servers.

On this note, Codrington reassured that the regulatory process the company has gone through exemplifies that it is one of the "most highly secure, auditable supply chains in the market".

"In terms of degree of confidence of our customers, we have an auditable position in terms of what security looks like and what quality looks like. We are only working with legitimately installed software products like Microsoft. We've got very strict controls in our supply chain, because it's one of the biggest in the world," he said.

"Unlike our competitors, we maintain a significant in-house capability. We don't outsource to contract manufacturers. We have very large manufacturing capabilities across the globe that allows us to maintain security, quality, and efficiency in manufacturing. Our products are thoroughly tested. There has never been any evidence that there have been shipments of PCs containing malware or viruses. We're very confident in our processes and efficiency, so our customers have that level of confidence."

The agreement builds upon a strong history of collaboration that began in 2005, when Lenovo acquired IBM's PC business, including the ThinkPad line of laptops. Lenovo's pending acquisition of Motorola Mobility from Google will make it the world's third-largest smartphone maker, while further strengthening its position in the PC, tablet, and smartphone market.

Codrington said the PC market for Lenovo is still a core focus for the company.

"It's still a big market. People have spoken about tablets, but look, five years ago, we were speaking about the death of desktop, but that just hasn't happened. The PC market is still a very relevant, though commoditised, space; it's still extremely relevant.

"We're working with partners and customers to deliver activity-based working, for example, such as putting the right devices in the right hand for the right outcomes. Some people use tablets, some people from a productivity perspective use PCs, and as new technology such as gesture technology or voice technology develop, the PC will evolve, but it won't go away, because it's still the mainstay and the hub of everything," he said.

Codrington added that in Australia, it's all about growing the PC market share in Australia, particularly now that Sony and Samsung have exited the space.

"What we are about is scale. We have to have scale, we have to drive scale in the business. As we go through an organic growth in Australia, we've grown quite strongly in the past two years, and, as we have globally, you've seen us become the number one PC vendor, but organic growth is not enough. The aspiration we've got and the strategy we have is to drive that scale within the business," he said.

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