Lenovo Back in Talks for IBM's x86 Server Business: Reports

By Jeffrey Burt  |  Posted 2014-01-21 Print this article Print

For IBM, getting rid of the x86 server unit would be only the latest step in an effort to shed low-margin hardware businesses—such as PCs and printers—and focus on software and services. New technology trends like virtualization and the growing migration of workloads to the cloud have put pressure on sales of x86 servers. In October, IBM officials said the company's Systems and Technology unit saw revenue decline 17 percent in the third quarter 2013, with 7 percent growth in System z mainframes being offset by declines in Power (37 percent) and x86-based System x (16 percent) servers and storage (10 percent).

At the same time, business units around business analytics, cloud and Smarter Planet all saw strong revenue growth, the officials said.

According to reports, talks last year between Lenovo and IBM broke off after Lenovo officials put the valuation of IBM's x86 server business at less than $2.5 billion. There is no indication at what level Lenovo is putting the business at now. IBM doesn't detail revenues for the System x business, though third-quarter revenue for the entire Systems and Technology unit came in at $3.2 billion in the third quarter.

At the time, analysts said a deal between IBM and Lenovo would make sense for both. Forrester Research analyst Richard Fichera said in a blog post that "IBM sold its PC business to Lenovo to the tune of popular disbelief and dire predictions, and it's doing very well today because it transferred its investments and focus to higher-margin business, like servers and services. Lenovo makes low-end servers today that it bootstrapped with IBM-licensed technology, and IBM is finding it very hard to compete with Lenovo and other low-cost providers."

IBM on Jan. 16 announced the latest iteration of its X-Architecture for System x and PureSystem servers. The new X6 architecture includes integrated eXFlash flash storage for enhanced performance, a modular design and improved resiliency for better uptime.

IDC and Gartner analysts in the third quarter both put IBM at number two in worldwide server revenues, behind HP and ahead of Dell. In server shipments, IBM was number three behind HP and Dell, Gartner said.


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