Lenovo Confirms IBM x86 Server Bid, Deal May Be Worth Up to $4.5 Billion
Lenovo confirmed reports that it is making a play for IBM’s (NYSE: IBM) x86 server business, although in the vaguest of terms, posting a statement on the Hong Kong exchange from chairman and chief executive Yang Yuanqing that it is in “preliminary negotiations with a third party in connection with a potential acquisition."
In the statement, Lenovo said that at this point, no deal had been made, no price agreed upon and, until such time as that occurred, there’s wasn’t much to talk about. “No material terms concerning the potential acquisition have been agreed and the company has not entered into any definitive agreement,” the Chinese PC maker said, according to a Bloomberg report, which also noted that the transaction may still be weeks away from concluding.
The chatter to this point is valuing the sale at somewhere between $2.5 billion to $4.5 billion, based on the terms of the deal. Two big unknowns are what impact IBM’s sliding x86 server revenue will have on the transaction, and to what degree Lenovo believes it can take the business and run, duplicating what it did with IBM PCs when it bought that business eight years ago.
IBM’s overall hardware revenue fell 17 percent to $3.1 billion in Q1 2013, with System x sales sliding 9 percent. The company has indicated it will take “substantial actions” to fix the problems, ranging from divesting itself of underperforming segments to new acquisitions and cost cuts to stem the tide of hardware-related losses.
For Lenovo, the timing, as it was with PCs, could be right to acquire IBM’s x86 server business. With more small- and medium-sized businesses upgrading their technology profiles to include the cloud and data analytics, low-cost servers are an intriguing item. With Lenovo having already taken measures to branch out from its core PC-making businesses to tablets, smartphones, mobility and the cloud, this next step certainly seems a logical one to take.
Keep in mind that Lenovo hinted earlier this year that it was sniffing around for key acquisitions when it was mentioned in connection with possibly buying BlackBerry (NASDAQ: BBRY), then known as Research in Motion (RIM). “We are looking at all opportunities, RIM and many others,” Wong Wai Ming, Lenovo chief financial officer said at the time. “We’ll have no hesitation if the right opportunity comes along that could benefit us and shareholders.”