Fujitsu Joins Lenovo, Dell in Pursuit of IBM Server Biz: Report

 
 
By Jeffrey Burt  |  Posted 2014-01-22
 
 
 

Fujitsu reportedly is the latest tech vendor that is interested in IBM's low-end x86 server business.

Citing unnamed people "familiar with the matter," the Wall Street Journal reported that the giant Japanese company is considering buying all or part of IBM's System x portfolio, which includes systems powered by chips from Intel and Advanced Micro Devices. Lenovo and Dell also reportedly are looking at the business, with some news outlets saying a deal with Lenovo could be struck within weeks.

IBM over the past several years has shed low-margin hardware businesses—including in 2005, when the company sold its PC business to Lenovo for $1.25 billion—as it focuses more of its efforts on software and services.

An IBM spokesman said the company does not comment on speculation.

Big Blue was in the late stages of negotiations with Lenovo last year, but those talks broke off in May 2013 when the two sides could not agree on the value of the x86 business. IBM's data center hardware business overall—and its low-end server unit in particular—continue to be a drag on the vendor's financial numbers.

IBM officials on Jan. 21 reported that profit for the hardware unit fell $750 million in the fourth quarter and $1.7 billion for all of 2013. Martin Schroeter, CFO and senior vice president for finance and enterprise transformation, said during a conference call with analysts and journalists that "hardware continued to impact our overall performance. We are dealing with some challenges in our hardware business model specific to Power, storage and X86. As expected, in System z [mainframes], we are impacted by the product cycle as we wrap on very strong performance a year ago. Together, these dynamics significantly impacted our revenue growth and profit."

Fujitsu's server strength is in its high-end systems that run its SPARC64 processors. Adding IBM's System x business would give the vendor an avenue into the x86 server market, where most systems are used in enterprise data centers. In the third quarter of 2013, IBM was second in server revenues and third in server shipments, moving 201,777 units, according to Gartner analysts. Fujitsu was fifth in shipments, at 68,424 systems.

For Lenovo, IBM's x86 server business would help the company diversify its product portfolio. The company is the world's top vendor in a weakening global PC market, and officials are now looking to extend Lenovo's reach beyond PCs. One growth area is servers, which Lenovo has been selling in China for almost two decades. Now Lenovo is trying to branch out into other regions, including North America, and two years ago established the Enterprise Systems Group, housed in North Carolina.

Lenovo executives in a Jan. 21 note to the Hong Kong Stock Exchange admitted that the company was in negotiations with a third party, but did not say who the other company is or what Lenovo was looking to buy.

Dell, which in recently became a private company after a $25 billion leveraged buyout by founder and CEO Michael Dell, has long had an x86 server business. However, the company is trying to remake itself into an enterprise IT solutions and services business—and to reduce its reliance on the troubled PC market—and gaining IBM's System x lineup and customers would give the company a boost.

According to Gartner, Dell was third in server revenues and second in shipments in the third quarter of 2013. Hewlett-Packard topped both charts.

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