Lenovo drops $2.3 billion to buy IBM's x86 server business

Deal marks end of months of speculation about Big Blue's plans to exit the x86 market.

For Sale

IBM has confirmed plans to sell off its x86 server business to Chinese PC maker Lenovo, ending months of speculation about a potential deal between the two firms.

Lenovo has agreed to stump up $2.3 billion for the business unit, despite IBM reportedly turning down an offer of similar size from the firm last year.

At the time, media reports suggested Big Blue was holding out for between $4 billion-to-$6 billion for the business unit, while Lenovo was only willing to fork out a maximum of $2.5 billion.

Reports began circulating earlier this week that a deal between the two vendors might be on the cards, with some also suggesting Dell might be interested in putting in a sneaky bid too.

The x86 unit sale covers IBM's System X, BladeCenter and Flex System blade servers and switches, as well as its Flex integrated systems, and NeXtScale and iDataPlex server range.

However, IBM has confirmed that it will continue to develop its Windows and Linux software portfolio for the x86 platform once the deal closes.

IBM also stated that the 7,500 employees that work within the x86 unit across the globe are "expected" to be employed by Lenovo, post-acquisition.

Furthermore, Lenovo will assume responsibility for any related customer service and maintenance delivery. Although IBM has agreed to continue providing services in this area for some time after to keep customer disruption to a minimum.

For Lenovo, the deal will allow it to diversify into other areas, as the downturn in the PC market continues on.

Meanwhile, IBM has recently announced multi-billion investments in its global cloud strategy, as well as its AI venture Watson.

Yang Yuanging, chairman and CEO of Lenovo, said the deal marks an extension of its "PC plus" strategy.

"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," he said.

Its position as the number one PC vendor is largely the result of its decision to purchase IBM's PC business in 2005.

Steve Mills, senior vice president and group executive at IBM Software and Systems, said the deal will allow Big Blue to focus its efforts on big data and cloud innovation.

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

Kate Hanaghan, research director for infrastructure services at analyst TechMarketView, said the acquisition was hardly a surprise.

"The divestiture brings in the cash to fuel investments (including acquisitions) in more strategically important areas [to IBM]," she wrote in a research note earlier today.

"Q4 2013 results showed that revenue fell five per cent to $27.7bn, with hardware sales falling faster than analyst expectations, at 25 per cent.

"To counter the decline in traditional areas of its business, IBM is moving aggressively into higher growth areas such as data analytics and cloud [and its] cash is helping it to continue its evolution in a market that continues to be very dynamic and fast-moving," Hanaghan added.

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