IBM, Lenovo Server Deal May Take Longer Than Expected

 
 
By Jeffrey Burt  |  Posted 2014-06-04
 
 
 
IBM Lenovo x86 servers

Lenovo's $2.3 billion acquisition of IBM's low-end x86 server business reportedly could take longer than expected to close due to an ongoing security review by U.S. regulators.

The two companies are seeking more time for the security review by the Committee on Foreign Investments in the U.S. (CFIUS), a move that would give Lenovo and IBM more time to gain the necessary approval to move forward with the deal, according to a report by Bloomberg.

CFIUS is a governmental interagency group that reviews for national security purposes the acquisitions of domestic companies by foreign entities, and the group's approval is necessary before such a deal is closed. According to reports, a usual CFIUS review takes 75 days, but to extend the process to buy more time, companies can pull their paperwork and then refile with the group, restarting the 75-day timetable.

Reports began to surface in early April that IBM's sale of its x86 server business to Lenovo—which is based in Beijing, China—was getting close scrutiny from U.S. agencies around issues of national security. Government agencies, including the Department of Defense and the FBI, buy x86 servers from IBM, as do the largest telecommunications companies, such as AT&T and Verizon Wireless.

The CFIUS security review of the deal, which was announced in January, comes at a time of increased tension between the United States and China over such issues as cyber-spying and hacking. U.S. lawmakers for several years have expressed national security concerns about such Chinese companies as Huawei Technologies and ZTE, worried that their products could contain back doors that would allow Chinese officials access to U.S. networks and sensitive data.

U.S. lawmakers and officials for years have been pointing to China as a major source of the world's cyber-spying. More recently, the United States last month indicted five Chinese military officials for allegedly hacking into the computer systems of U.S. companies.

China has denied allegations of cyber-espionage, and more recently has accused the United States of such offenses, in part due to the disclosures around the surveillance programs of the National Security Agency from former NSA employee Edward Snowden. Among the more recent disclosures was the accusation that the NSA was intercepting IT gear from the likes of Cisco Systems and installing surveillance technology.

In response, the Chinese government said it will review tech companies with operations in the country—one of the largest and fastest-growing tech markets in the world—and ordered all state-owned companies to stop doing business with U.S. consulting firms. In recent weeks, the Chinese government also has targeted several major U.S. tech companies, including Cisco, Microsoft and IBM. The company last month banned Windows 8 from government computers, and reportedly asked banks to remove servers from IBM and replace them with systems built by Chinese companies.

Lenovo buying IBM's server business could be a boon for both companies, according to analysts. It would enable IBM to unload a low-margin, commodity business and focus more of its efforts and resources on other areas, including software, services and its budding business around its Watson systems. For Lenovo, the deal would automatically make it a major player in the worldwide server market—much like buying IBM's PC business in 2005 helped make it the global leader in PCs—and be a major part in the company's effort to become a leader in all computing spaces.

Soon after announcing the IBM deal, Lenovo officials revealed that the company was buying handset maker Motorola Mobility from Google for $2.9 billion.

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