Lenovo agrees to buy IBM’s x86 server business for US$2.3bn

23 Jan 2014

Lenovo has confirmed it is to buy IBM’s x86 server business for about US$2.3bn. Lenovo will pay US$2bn in cash and the balance will be paid in Lenovo stock.

Almost a year ago, IBM was in talks to sell its x86 server business to Lenovo for around US$2.5bn but it is understood talks broke down.

It is understood that Dell was also interested in acquiring the low-margin server business from IBM.

IBM is seeking to exit low-margin businesses like it did with its PC division, which it sold to Lenovo in 2005 for around US$1.75bn.

IBM’s low-end server business generated around US$4.8bn of IBM’s US$15.4bn overall sales in 2012.

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

“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.”

Innovation and transformation

IBM said it will continue to develop and evolve its Windows and Linux software portfolio for the x86 platform. 

Both Lenovo and IBM plan to enter into a strategic relationship that will include a global OEM and reseller agreement for sales of IBM entry and mid-range storage systems, file system software, smart cloud services and IBM’s system software portfolio.

Some 7,500 IBM employees around the world at locations including North Carolina, Shanghai, Shenzhen and Taipei, will be offered employment at Lenovo.

The deal, which is subject to regulatory approval, follows IBM’s recent announcement that it will invest more than US$1bn in the new IBM Watson Group and US$1.2bn to expand its global cloud computing footprint to 40 data centres in 15 countries across five continents.

“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,” said Steve Mills, senior vice-president and group executive, IBM Software and Systems.

“IBM has a proven record of innovation and transformation, which has enabled us to create solutions that are highly valued by our clients.”

Server room image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years