IBM Corp. (NYSE: IBM) said it has agreed to sell its x86 server business division to Lenovo (HKSE: 992) for approximately $2.3 billion in a transaction that further deepens the collaboration began by the two companies in 2005 when the Chinese OEM acquired its North American rival’s consumer PC operation.
Lenovo, a $40 billion revenue company that has been trying to diversify sales in response to weakness in its core PC operation, gains significant customers and entry into the higher-margin server business with this deal while IBM further disengages from the electronics hardware market in continuation of its focus on systems development, enterprise software and cloud computing.
The transaction calls for the transfer to Lenovo of IBM’s x86 server business, including the System x, BladeCenter and Flex System blade servers and switches, 2-86 Flex integrated systems and other server hardware with their associated software. Lenovo will continue to service and support existing customers, the companies said. IBM executives said the transaction would enable the Armonk, NY-based company continue its reorganization as it deals with weakness in other business operations.
“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 VP and group executive, IBM Software and Systems, in a press statement. “IBM has a proven record of innovation and transformation, which has enabled us to create solutions that are highly valued by our clients.”
Press reports indicate Lenovo jostled with Dell Inc. for the IBM division and won on the basis of its existing relationship with the seller. While IBM is moving away from the hardware business, the company said it will retain some higher-end server products, including the System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication and PureData appliances.
“IBM will continue to develop and evolve its Windows and Linux software portfolio for the x86 platform,” the company added in the release. “Lenovo and IBM plan to enter into a strategic relationship which will include a global OEM and reseller agreement for sales of IBM’s industry-leading entry and midrange Storwize disk storage systems, tape storage systems, General Parallel File System software, SmartCloud Entry offering, and elements of IBM’s system software portfolio, including Systems Director and Platform Computing solutions.”
The transaction calls for the transfer of about 7,500 IBM employees in Raleigh, Shanghai, Shenzhen and Taipei to Lenovo, which said the deal would help fuel its growth in the global PC market.
“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.”