Lenovo to Buy IBM x86 Server Unit for $2.3 Billion - Page 2

IBM also gets to rid itself of a business that increasingly was becoming a drag on its financial numbers. The company reported Jan. 21 that the hardware unit's profit fell $750 million in the fourth quarter and $1.7 billion for all of 2013. During a conference call, Martin Schroeter, chief financial officer and senior vice president for finance and enterprise transformation at IBM, said the company was "dealing with some challenges in our hardware business model specific to Power, storage and X86."

For Lenovo, gaining IBM's server business gives it a significantly greater presence in the data center, and enables it to diversify its portfolio and lessen its reliance on the declining global PC market. The company has been selling servers in China for almost two decades, but in recent years has looked to expand its server market into other regions, including North America. The company two years ago created the Enterprise Systems Group to help it gain traction in the North American market.

The two companies also will expand their relationship to include an OEM and reseller agreement for sales of other IBM technologies, including its Storwize disk storage systems, tape storage products, SmartCloud Entry offering and parts of its system software solutions.

"This acquisition demonstrates our willingness to invest in businesses that can help fuel profitable growth and extend our PC Plus strategy," Lenovo Chairman and CEO Yang Yuanqing said in a statement. "With the right strategy, great execution, continued innovation and a clear commitment to the x86 industry, we are confident that we can grow this business successfully for the long term, just as we have done with our worldwide PC business."

Jack Gold, principal analyst with J. Gold Associates, said both companies will benefit from this deal.

"This is win-win as IBM gets to unload the overhead associated with having a manufacturing line, and Lenovo gets the IBM channel to sell through," Gold wrote in a report. "And Lenovo also gets the IBM service organization engaged in making the servers successful in the enterprise. Lenovo also has its eye on its currently biggest competitor—HP (with Dell not far behind), and this acquisition gives them a greater breadth of products (and an IBM endorsement) with which to compete."