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The Hardware Days Are Over? IBM Sell Servers To Lenovo

By Oonagh Reidy | Friday | 24/01/2014

After days of speculation, Lenovo has acquired IBM's x86 server business for $2.3bn

World's largest PC maker snaps up IBM x86 service business for $2.3bn, as the US giant continues to rid its self of unprofitable hardware units. 

IBM, who this week reported Q4 sales declined 5% to $27.7 billion, pledged to "continue to transform our business and invest aggressively in the areas that will drive growth and higher value." It's aiming to boost operating EPS to $20 by 2015. 

The sale of low grade x86 server units appears to be part of that game plan. Q4 revenues from System x, which x86 is part of, fell 16 percent in Q4. 

IBM plans to invest $1 billion in the new Watson Group, and $1.2 bn to expand its cloud computing footprint to 40 data centers worldwide, as it focuses on services and cloud offering.

Lenovo, now the worlds biggest PC maker, said the purchase was part of its 'PC Plus strategy' and plans to grow the business, according to CEO Yang Yuanqing. 

"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." Lenovo acquired IBM's PC unit, including the ThinkPad PCs in 2005. 

Lenovo today tweeted: "Once the #IBM x86 Server acquisition is completed, Lenovo will jump from 6th to 3rd place in race for worldwide market share.'  

The agreed price US$2.3 billion, of which $2 bn will be paid in cash and the balance in Lenovo stock.

The Lenovo deal includes System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations.

Lenovo will assume related customer service and maintenance operations. IBM will continue to provide maintenance delivery on Lenovo's behalf for an extended period of time.

The US giant, once Synonymous with the personal computer, will continue to develop and evolve its Windows and Linux software portfolio for the x86 platform. 

IBM will retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and others. 

The duo plan to enter into a strategic relationship which will include a global OEM and reseller agreement for sales of IBM's Storwize disk storage systems, tape storage systems, SmartCloud Entry offering, and elements of IBM's system software portfolio, including Systems Director and Platform Computing.
7,500 IBM employees based at Raleigh, Shanghai, Shenzhen and Taipei, are expected to be kept on by their new owners.  

"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, IBM Software and Systems. 

"IBM has a proven record of innovation and transformation, which has enabled us to create solutions that are highly valued by our clients."
The transaction is subject to regulatory requirements and any other needed approvals. 

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