IBM says goodbye to x86 forever, sells server lines to Lenovo

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After reports earlier this week that IBM was again shopping its x86 server unit around—including talks with Dell—Lenovo executives announced that they had reached an agreement with IBM to buy the business for a price of $2.3 billion.

IBM will stay in the high-end server and mainframe business, focusing on its System Z and Power lines as well as its storage systems and specialized server appliances. Big Blue will hand over its System x, BladeCenter, and other x86-based server lines to Lenovo. Once the transaction is finalized, Lenovo will instantly become at least as large a server company as Dell, if not as large as HP.

The deal with Lenovo may have been reached after IBM failed to find a better one. Last year's negotiations between the companies reportedly broke down after Lenovo offered under $2.5 billion for the unit, prompting IBM to walk away. While the exact offer Lenovo made in 2013 isn't known, today's deal certainly isn't for more than that. But on the upside for IBM, the transaction will mostly be in actual dollars: Lenovo will pay approximately $2 billion in cash, and the rest of the transaction will be paid for in Lenovo stock. Lenovo and IBM will also enter into a strategic partnership that will allow Lenovo to resell IBM’s storage and cloud computing systems as well as some of its software. And about 7,500 current IBM employees are expected to be hired by Lenovo worldwide.

There’s no way to tell exactly how big IBM’s x86 server business is—the company does not break out the unit’s sales in its official accounting. But according to IDC figures, IBM had regained the top market share position in servers overall last year. And IBM’s x86 server sales make up about three-quarters of its overall server business—though not of its server profits.

The deal puts Lenovo in a position to better compete with Hewlett-Packard and Dell in the enterprise market in a time when sales of notebook and desktop PCs are particularly soft. “We are confident that we can grow this business successfully for the long term, just as we have done with our worldwide PC business,” Lenovo chairman and CEO Yang Yuanqing said in an official statement on the acquisition.

The deal also frees IBM from the last vestiges of its low-margin PC business and allows it to focus more on areas such as its Watson “cognitive computing” platform, cloud computing services, and lucrative consulting business. IBM sold Lenovo its desktop and notebook PC business in 2005.