Lenovo in Talks to Buy IBM’s x86 Server Business

Lenovo (HKG:0992)  is apparently in talks with IBM (NYSE:IBM) to buy Big Blue’s commodity server business — the low-end x86 servers — and recent reports have said that these talks are moving quickly. This makes a lot of sense and proves once again the wisdom of those business owners who have moved into the managed services business. Services are high margin. Commodity hardware sales are not. Here’s a look at some of the reasons why this deal makes sense for both parties and how it affirms the strength of the managed services space.

First, some background. Back in 2005 Lenovo bought IBM’s PC business which included the well-respected ThinkPad brand. Then in 2008 Lenovo unveiled its first line of x86 servers, the ThinkServer line. The company has steadily expanded its server offerings and most recently has promoted its image as a server company at Synnex’s recent Varnex event in Orlando.

Here’s why this deal makes sense for everyone:

• Lenovo gets more SKUs to add to its linecard and cater to its customer base of small and midsized companies who consume commodity servers. 
• Lenovo can offer this expanded line of servers to its resellers as well and also gain greater economies of scale.
• Lenovo can better compete across product lines with Dell and HP
• IBM gets out of a lower-margin business and can focus on its higher-margin hardware sales to enterprises and data centers as well as services and software. That’s the same thing IBM did when it sold the PC business to Lenovo.
• IBM is expected to retain high end systems including the PureSystems line that it has been pitching to MSPs as the basis for them hosting SaaS solutions. 

Meanwhile, IBM’s plan to sell the x86 business, if that’s what happens, reaffirms the strength of services and other higher margin businesses, analogous to a VAR making moves into the managed services space.