The Telegraph
Friday , January 24 , 2014
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Lenovo buys IBM server arm

Deal time

Beijing, Jan. 23 (Reuters): Lenovo Group Ltd has agreed to buy IBM Corp’s server business for $2.3 billion as the Chinese PC giant grabs another piece of the computing world in a long-awaited deal.

The acquisition comes nearly a decade after Beijing-based Lenovo bought International Business Machines’ (IBM) loss-making ThinkPad business for $1.75 billion, eventually becoming the world leader in personal computers in 2012.

But with the PC business now under siege in the face of powerful smartphones and super-fast tablets, Lenovo is diversifying its revenue and remodelling itself as a force in mobile devices and data storage servers.

The acquisition of the IBM unit, still subject to approval from the Committee on Foreign Investment in the United States (CFIUS), would lift Lenovo’s market share in the server market to 14 per cent from 2 per cent currently, said Peter Hortensius, senior vice-president at Lenovo and president of its Think Business Group.

Before that happens, Lenovo has to turn the server unit around. The low-margin business — which sells less powerful and slower x86 servers than IBM’s other higher-margin offerings — has posted seven quarters of losses as more clients switch to cloud storage from traditional infrastructure.

“We will do a variety of things, improve products, drive improved costs, and couple it with the scale we have and our PC business to improve go-to-market,” Hortensius told Reuters on Thursday after the deal was announced.

Analysts said Lenovo would likely to find it easier than IBM to sell the x86 servers to Chinese companies as Beijing tried to localise its IT purchases in the wake of revelations about US surveillance.

Lenovo said it expected demand for computing power and recovery of global enterprise spending to further drive growth in the x86 server market.

Lenovo has agreed to pay $2.07 billion in cash and the rest with stock of the Hong Kong-listed PC maker, in a deal set to be China’s biggest technology M&A.

The deal surpasses Baidu Inc’s $1.85 billion acquisition of 91 Wireless from NetDragon Websoft Inc last year, according to Thomson Reuters data, and underscores the growing clout of the country’s technology firms as they look to expand overseas.