Lenovo Confirms Purchase Of IBM x86 Server Business For £1.4 billion

Computer manufacturer Lenovo has announced that it is purchasing IBM’s x86 server business for $2.3 billion (£1.4bn).

After initial negotiations fell through last year, the Chinese manufacturer, recently named by Gartner as the top PC manufacturer in the world, resumed talks with a view to as it looks to build a name for itself in the server market.  Following an official announcement, trading on Lenovo shares was suspended from the Hong Kong Stock Exchange last night whilst the deal is finalised.

Under the terms of the acquisition, Lenovo will pay $2 billion in cash and the rest in stock. In return, it will receive 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.

Diversifying

“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.”

IBM 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.

Lenovo will assume related customer service and maintenance operations, but IBM will continue to provide maintenance delivery on Lenovo’s behalf for an extended period of time, so customers should see little change in their maintenance support.

Lenovo is expected to offer 7,500 IBM workers around the world employment working for the company, with employees at the Raleigh, Shanghai, Shenzhen and Taipei factories likely to be affected.

This agreement follows recent announcements by IBM that it will invest more than $1 billion in the new IBM Watson Group, and $1.2 billion to expand its global cloud computing footprint to 40 data centres worldwide 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.”

The deal marks the second time that Lenovo has bought a hardware business from IBM. In 2005, the company purchased IBM’s ThinkPad division, which helped Lenovo expand in the business PC market, whilst allowing IBM to shed a commodity business a few years before the PC market began to slide and invest the money in areas – from software to services to servers – that yielded higher margins.

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