China Approves Lenovo/IBM Server Deal

The protracted acquisition of IBM‘s x86 server business to the Chinese IT giant Lenovo, has inched one step closer to completion.

The deal has gained the official blessing of the Chinese Ministry of Commerce’s anti-monopoly bureau, which has approved the $2.3bn (£1.3bn) takeover of Big Blue’s low end server business.

Chinese Approval

In January this year, Lenovo finally confirmed long-standing rumours and said it would purchase IBM’s x86 server business. That deal gives the Chinese computer maker control 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.

It will also take on approximately 7,500 IBM workers.

IBM meanwhile will retain its Power RISC business, the System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication and PureData appliances. It will continue to develop and evolve its Windows and Linux software portfolio for the x86 platform, and the two companies will enter a reseller agreement for IBM’s Storwize storage systems and its software portfolio, which includes the Systems Director and Platform Computing solutions.

The deal is expected to be complete by the end of the year, but there is a potentially a much bigger hurdle remaining before it can be completed.

National Security

This is because regulatory approval is still required from the US authorities. And an added complication comes from the fact that American government officials are investigating whether Lenovo’s purchase of IBM’s x86 server business endangers America’s national security.

This is because IBM’s servers are widely used in US government communications networks and data centres, and US authorities are concerned that the Lenovo deal might enable Chinese spies to access these systems.

In America, foreign deals have to be scrutinised by the Committee on Foreign Investment, for possible impact on national security, and it is known that the two companies have been asked to re-file their application for the deal, giving answers to specific security questions.

It is fair to say that the US has an increasingly distrustful relationship with both China and its leading tech firms. Networking giant Huawei has faced criticism from US authorities and scaled its American presence down, while denying any involvement in Chinese spying and expressing its own outrage at the NSA’s activities in China.

It should be noted that the Committee on Foreign Investment did approve Lenovo’s purchase of IBM’s PC business, way back in 2005, but since then reports have surfaced of “security incidents” involving Lenovo PCs, which are now banned on classified US networks.

But the national security argument cuts both ways, and the Chinese government is reportedly pressuring its domestic banks to replace high-end IBM servers with similar equipment manufactured within the country, as part of a national security review.

Officially though, both IBM and Lenovo still say the deal is expected to go through, pointing out that these are low-end servers, not giant mainframes, and they are already made under contract in China, so little would change in practice if the deal goes through.

However, US officials are concerned that x86 servers can be clustered together and are displacing larger servers. There is also concern that maintenance for IBM’s low-end servers will pass to Lenovo, after a period in which IBM will provide the service, potentially giving China access to US government servers.

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