Lenovo to buy IBM's x86 server business for $2.3bn

Lenovo has agreed to acquire IBM's low-end server business for $2.3bn in a move that will see 7,500 Big Blue staff move to the Chinese company.
Written by Liam Tung, Contributing Writer

Lenovo's interest in acquiring IBM's low-end server business hasn't exactly been a secret, and today the company has confirmed it will snap up the unit, leaving IBM to focus on other businesses including its cognitive computing effort Watson.

Lenovo and IBM announced on Thursday they have signed a definitive agreement that will see the Chinese hardware giant acquire the IBM's x86 server business for the tidy sum of $2.3bn, with approximately $2bn to be paid in cash and the balance in Lenovo stock.

Adding to the PC business Lenovo acquired from IBM in 2005, Lenovo will take charge of IBM's 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.

Read: IBM Watson: How the Jeopardy-winning supercomputer was born, and what it wants to do next

The deal will affect around 7,500 IBM employees around the world, and Lenovo says they are expected to be offered employment with the company.

The sale, which is subject to regulatory approval, would allow IBM to focus on its recently announced plans to invest $1.2bn in cloud computing and $1bn in commercialising Watson-based cognitive computing technologies.

"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," Steve Mills, SVP and group executive for IBM Software and Systems, said.

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.

Despite current low growth rates for the low-end server market, Lenovo CEO and chairman Yang Yuanqing said he was confident the company could make money from the acquisition.

"This acquisition demonstrates our willingness to invest in businesses that can help fuel profitable growth and extend our PC Plus strategy," Yang Yuanqing, chairman and CEO of Lenovo, said. "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."

IBM's server business has waned over the past year, with Q3 2013 shipments down by more than 20 percent year on year, according to figures from analyst firm Gartner.

IBM, currently the second largest server maker by revenue, earned $2.8bn in Q3 2013 from its server business, down 18.9 percent from a year ago when it earned $3.5bn. The company has cited difficulties with its server business in China in recent months, and more recently has faced a lawsuit related to its decline in sales in China, where hardware makes up around 40 percent of its $5bn revenues from the country. 

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