Lenovo set to complete acquisition of IBM x86 server business

Lenovo is paying US$2.1 billion to buy IBM's x86 server business

Nine months after it was first announced, Lenovo's acquisition of IBM's x86 server business is headed towards closing.

Having received regulatory approval from the U.S., the European Commission and China, the companies will start closing the US$2.1 billion deal on Wednesday. The handover will take place in most major markets starting this week, and will be completed in the remaining countries into early next year, the companies said.

As a result of the deal, Lenovo is receiving a host of IBM products including its System x, BladeCenter and Flex System blade servers and switches, along with its NeXtScale and iDataPlex servers and associated software.

IBM, however, will still hold on to its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, PureApplication and PureData appliances.

Lenovo previously acquired in 2005 IBM's personal computing business.

The deal was originally expected to close in six to nine months, and will give Lenovo a major foothold in the enterprise market. On Monday, the companies said the acquisition will make the Chinese PC maker the third largest x86 server vendor in the world.

Lenovo has already been diversifying its business, at a time when demand for PCs continues to fall. On the consumer side, the company has been aggressively pushing its smartphone business in China, where it's become a top vendor.

Demand for x86 servers is growing, although competition in the market remains stiff. IBM was the world's second largest server vendor in the second quarter, according to research firm IDC, with its market share at 23.6 percent. But its lower-end server business has been losing sales to rival x86 server makers.

Despite the competition, buying IBM's x86 server business could still be a boon for Lenovo. Enterprise products are generally a higher-margin business than consumer gadgets, and Lenovo's own manufacturing capabilities and sales channels could help squeeze out more profits from the server sales, according to analysts.

On Monday, Lenovo said it had "big plans" for the enterprise market. "We will compete vigorously across every sector, using our manufacturing scale, and operational excellence to repeat the success we have had with PCs," the company added.

In the PC market, Lenovo is the world's largest vendor, with a 19.6 percent share, putting it slightly ahead of Hewlett-Packard, according to IDC.

IBM's x86 server business will be managed under Lenovo's Enterprise Business Group. Adalio Sanchez, general manager of IBM's x86 and PureSystems group, is moving over to Lenovo to lead the business.

Lenovo's acquisition of IBM's x86 server business will be priced about $200 million less in cash than when it was originally announced. This is due to a change in the value of inventories transferred, the companies said.

The Chinese company will now pay $1.8 billion in cash, and $280 million in its stock to IBM.

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Michael Kan

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