Lenovo, IBM to Close $2.1 Billion Server Deal Oct. 1

Lenovo will become the world's number-three server maker, with designs to pass HP and Dell.

Lenovo server

Lenovo on Oct. 1 will become the world's third-largest server vendor, and will begin efforts to overtake Hewlett-Packard and Dell for the top spot, according to officials.

Lenovo and IBM executives on Sept. 29 announced that, in two days, they will close the $2.1 billion deal in which Lenovo will buy IBM's x86 server business. The acquisition that was announced in January is part of Lenovo's larger push to become a dominant player in all segments of computing, an effort that includes the vendor's current bid to buy Motorola Mobility from Google for $2.9 billion.

With IBM's server business in the fold, Lenovo executives said the company will look to rapidly grow its Enterprise Business Group over the next year into a profitable unit with more than $5 billion in revenue, Lenovo Chairman and CEO Yang Yuanqing said during a conference call with analysts and journalists Sept. 29.

Yang and other executives also said that with the deal closing, they can aggressively push back at rivals like HP, which used the 10 months it took for the deal to clear regulatory obstacles to ramp up efforts to lure Lenovo and IBM server customers. HP launched a program called Project Smart Choice aimed at IBM customers that may have had reservations about making the move to Lenovo.

Gerry Smith, executive vice president of Lenovo Group and president of Lenovo's Enterprise Business Group and Americas Group, said during the conference call that the company expects to see results similar to those from Lenovo's $1.25 billion acquisition in 2005 of IBM's PC business, which helped propel Lenovo into the world's largest PC vendor.

"This acquisition has many things in common with that groundbreaking deal," Smith said. "Back then, our competitors said we could not win together. They said our cultures would clash. They said that our merger would fail. We proved them wrong on every count. Like Yuanqing said, we expect to repeat the same success we had in PCs as we expand into the enterprise."

In the deal, Lenovo is getting blade servers and switches from IBM's System x, BladeCenter and Flex System businesses, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations. IBM will keep its System z mainframes as well as its servers and storage systems based on its Power chips, Power-based Flex servers, PureApplication and PureData appliances.

As part of the agreement, Lenovo also will serve as an IBM OEM and resell some IBM products, such as IBM's Storwize storage products, flash storage arrays and parts of the IBM software portfolio.

Lenovo is getting an established server business, but also one that has seen its fortunes fall a bit while waiting for the deal to close. According to IDC analysts, HP and Dell both saw revenues in the second quarter grow slightly from the same period a year earlier, while IBM's slipped from more than $3.3 billion during the quarter in 2013 to $2.9 billion during the quarter this year. Its market share fell 10.2 percent, to 23.3 percent, dropping it behind HP's share of 25.1 percent.