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Lenovo gets IBM’s server division

by on29 September 2014



Deal completed in two days

Lenovo will close its acquisition of IBM’s x86 server division on October 1 for $2.1 billion, giving the Chinese tech firm the firepower to win business clients from US rivals. The price is lower than the $2.3 billion announced in January because of a change in the valuation of inventory and deferred revenue liability, Lenovo said. More than $1.8 billion will be paid in cash and the remainder in stock.

Earlier this year, Lenovo also said it would pay $2.9 billion for Google Motorola smartphone unit. Lenovo Chief Executive Yang Yuanqing said the IBM deal opened a new "growth engine" for his company. This could be good but there is always a risk buying a second hand engine. Last time we did that we only got 5,000 km and the thing kicked a piston. He said he expected the x86 unit to bring in $5 billion in its first year and deliver margins higher than the four percent of Lenovo's PC business.

IBM's x86 server business has trailed those of HP and Dell in market share. But Yang said Lenovo has expertise competing in markets with razor-thin margins, gained during its journey to becoming the world's largest PC maker. Lenovo currently sells a line of low-end servers under the ThinkServer brand, but the company pursued IBM's x86 portfolio because its higher-end machines can do better number crunching.

The x86 server team will continue to be led by former IBM executive Adalio Sanchez, who will report to Gerry Smith, president of Lenovo's enterprise business group, Lenovo said in a statement announcing the deal's impending closure. It had been expected that the deal would take longer to close because of uncertainty about how US regulators might respond to a Chinese company buying a server business during a time of cyber-security paranoia.

IBM has been undergoing a strategic shift away from hardware, focusing instead on higher-margin cloud and big data products.

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