It was inevitable: Lenovo stumps up $2.3bn for IBM System x server biz

IBM sells its server business. The commoditisation of cheap chips is here. Aivars Lode avantce

By | Paul Kunert 23rd January 2014 10:05

It was inevitable: Lenovo stumps up $2.3bn for IBM System x server biz

7,500 staffers at Big Blue 'expected' to transfer over

IBM has offloaded its failing x86 biz to Lenovo for $2.3bn, albeit a day later than our sources had predicted.

The pair have entered into a definitive agreement - days after talks were confirmed - which includes System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers, software and maintenance.

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According to Gartner, IBM turned over $5.5bn worth of x86 kit in 2010 but by the end of 2012 the unit had increased that to $5.6bn.

Under the terms of the deal, Lenovo will cough $2.07bn in cash with the remainder in stock. The Chinese firm beat off competition from both the new privately-owned Dell and Japanese giant Fujitsu.

This is a massive climbdown from the return that Big Blue execs wanted last spring, when it is understood they were asking for up to $6bn. The continued decline in sales at System x obviously convinced them to get shot for less.

IBM said it will continue to develop and evolve the Windows and Linux software lines for x86 platforms. Lenovo will start to OEM and resell Big Blue's storage kit globally including Storwize disk and tape, General Parallel File System software, SmartCloud Entry and part of IBM's software (Systems Director/ Platform Computing).

After the deal closes, IBM will continue to provide maintenance on behalf of Lenovo "for an extended period of time, so customers should see little change in their maintenance support".

System x employs 7,500 people worldwide and IBM said they are "expected to be offered employment by Lenovo".

So no cast iron guarantees – which is, er... reassuring for the thousands involved.

The System x business has failed to grow since Q3 2011 and posted sales declines in every quarter last year. But Lenovo CEO and chairman Yang Yuanquing obviously thinks his firm can make a difference – which it did with the PC biz it bought from IBM in 2004 for $1.75bn.

"With the right strategy, great execution, continued innovation and a clear commitment to the x86 industry, we are confident that we can grow the business successfully for the long term, just as we have done with our world-wide PC business" he said in a statement.

x86 market leader HP will be watching developments very closely, having already relinquished the global PC crown to Lenovo last year. Lenovo currently has a single digit share of the x86 market with its own kit, and is outside of the top five players.

It took the best part of seven years for Lenovo to start firing on all cylinders, and it was only after it started to fine tune the supply chain, reduce channel conflict and introduce rebates that resellers began to flock to the Chinese vendor to promote its wares.

Steve Mills, IBM senior veep and group exec of the software and systems, said the sale allows it to concentrate on areas of tech including cognitive computing, Big Data and cloud.

The transaction is subject to regulatory approval including a nod from the Committee on Foreign Investment in the US. ®