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August 20, 2014
Lenovo’s blockbuster $2.3 billion deal for IBM’s (IBM) x86 business cleared its last hurdle last Friday, gaining the U.S. Committee on Foreign Investment’s (CFIUS) stamp of approval and paving the way for both vendors to move forward with new strategies.
The big question for both companies is, what now? Will Lenovo be able to run with IBM x86 servers as it’s done with IBM’s former ThinkPad business? Will IBM’s bottom line improve without the drag of a losing hardware business?
With the deal’s last obstacle out of the way and the transaction expected to close soon, Lenovo channel partners, in particular, will gain a broader lineup of hardware from IBM’s x86 server portfolio. The acquisition gives Lenovo an instantly recognizable presence in the x86 server market and opens up new data center revenue sources for the vendor as it looks for safe harbors to compensate for the flagging PC market and its limited position in the smartphone and tablet segments.
As for IBM, its hardware business has struggled mightily for the past two years. The company’s bottom line troubles should ease noticeably with the divestiture of its x86 server business. And, its channel partners will benefit from a clearer path ahead from selling software and services and contracting back with Lenovo for hardware. IBM already has confirmed that Lenovo will become its preferred x86 server vendor after the transaction closes.
Lenovo has offered jobs to some 7,500 IBM employees worldwide affected by the acquisition, including personnel located in Raleigh, North Carolina, and Shanghai, Shenzhen and Taipei, China.
In July, China’s Ministry of Commerce’s anti-monopoly bureau approved the deal. The Chinese state-owned Academy of Sciences holds a sizeable stake in Lenovo.
U.S. regulators were expected to closely examine the deal with an eye toward national security issues and whether it would give Chinese cyberspies an open door to IBM-branded U.S. government servers. The agreement calls for Lenovo to take over maintenance of IBM servers, a part of the transaction that seems to have passed U.S. security.
The deal, which comes eight years after Lenovo bought IBM’s ThinkPad business in 2005, involves IBM’s System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and related software, blade networking and maintenance operations.
IBM will hold on to its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers and PureApplication and PureData appliances.
Lenovo recently posted another banner quarter, recording an 18 percent year-over-year jump in sales for its fiscal Q1 2014 to $10.4 billion and an earnings spike of 23 percent over last year to $214 million. Its PC shipments grew some 15 percent to 14.5 million PCs, and for the first time the company moved more smartphones than PCs with 15.8 million units shipped—a 39 percent increase over the same period last year.
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