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

A year after previous talks broke off, the companies reportedly are negotiating a deal that would bring IBM's low-end server unit to Lenovo.

Lenovo reportedly is back in negotiations to buy IBM's low-end x86 server business, a move that would give the PC maker's data center ambitions a boost while enabling Big Blue to shed another low-margin commodity business as it looks to focus more of its efforts on software and services.

Talks between the two vendors reportedly broke off last year after a disagreement on the value of the IBM business, but recent financial numbers indicating the hardware business becoming a larger drag on IBM's bottom line may be compelling the larger company to return to the negotiating table. Some reports indicate IBM also may be talking to newly-private Dell.

A deal between Lenovo and IBM could be signed within weeks, an unnamed source told Bloomberg.

Spokespeople for both IBM and Lenovo said the companies do not comment on speculation.

However, in a notice sent Jan. 21 to the Hong Kong Stock Exchange, Lenovo Chairman and CEO Yang Yuanqing noted that his company is in "preliminary negotiations with a third party in connection with a potential acquisition," though he added that no deal had been agreed upon. He said the notice came after Lenovo's Board of Directors "noted certain articles published in the internet in relation to a possible acquisition by the Company of certain computer server business."

A deal on the server business would echo a similar one nine years ago in which Lenovo bought IBM's PC division for $1.25 billion. At the time, IBM officials said the PC business was becoming increasingly commoditized and that the company wanted a way out. Lenovo was the top PC maker in China, but had little presence outside of that country.

Now in 2014, Lenovo is the top vendor in a worldwide PC market that has seen overall sales decline over the past couple of years, putting a hurt on such system vendors and component makers as Hewlett-Packard, Dell, Intel and Advanced Micro Devices. The slowdown in PC sales has come as the popularity of mobile devices like smartphones and tablets has skyrocketed.

Lenovo is looking to diversity its portfolio and expand into the data center. The company has sold servers in China for more than 17 years, but over the past couple of years has begun to push into other markets, including North America. In 2012, Lenovo established the Enterprise Systems Group for its North American push, and is still ramping up the business, Michael Kendall, director of product marketing at Lenovo, told eWEEK during the Intel Developer Forum in September 2013.

Lenovo was at the show to unveil two new tower servers and to introduce an upcoming two-socket ThinkServer system powered by Intel's newest Xeon E5-2600 v2 chips.

Lenovo also wants to grow its storage business, leveraging a partnership with EMC that led to the creation of a new company, LenovoEMC, which launched in January 2013.