Lenovo To Gain From IBM Server Biz Acquisition

by CXOtoday News Desk    Jan 24, 2014

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Lenovo has announced its plans to acquire IBM’s x86 server business for $2.3 billion. The leading PC maker is also expected to offer jobs to 7,500 IBM employees as part of the deal.

The acquisition is expected to boost Lenovo’s expansion of a product line-up, currently dominated by PCs, tablets and smartphones, says the company. In other words, Lenovo can strengthen its server business worldwide, which has higher margins than PCs, which are seeing quarter-on-quarter decline in sales. With this acquisition, the company is expected to secure the third position in the server space globally as against a current ranking of number six.

The changes will positively impact the Indian market as well. In an interview with Business Standard, Lenovo India Managing Director Amar Babu said, “This deal has several financial and commercial benefits, which our Indian business will also derive.”

While IBM is one of the top-three players in the server space in India, Lenovo does not currently have any presence in the segment in India. He mentions that enterprise has been an area of investment for Lenovo, and whatever benefits the deal get us globally, will reflect in the India scenario as well.

According to the terms of the contract,  Lenovo will acquire, System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, networking and maintenance operations. IBM will receive $2.07 billion in cash and the balance in Lenovo stocks and also retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication and PureData appliances.

In 2005, Lenovo had acquired IBM’s PC business, which included the ThinkPad line of PCs. “In the period since, the companies have continued to collaborate in many areas,” Lenovo said in a statement. “IBM will continue to develop and evolve its Windows and Linux software portfolio for the x86 platform,” the release said. Post the transaction, Lenovo will take over customer service and maintenance operations. 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.

“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.

While the transaction is being completed, both companies expect no change in their independent, existing server operations, including customer service and product availability, said the company statement.