Lenovo buys IBM server division

 
Oliver Smith
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LENOVO, the world’s largest PC maker, yesterday agreed to buy IBM’s low-end server business for $2.3bn (£1.38bn), the biggest ever tech acquisition by a Chinese company.

Lenovo said the deal, which was reported to have stalled during talks last year due to differences in pricing, will allow it to diversify away from its shrinking PC business and position itself in the growing areas of mobile and data storage.

“This acquisition demonstrates our willingness to invest in businesses that can help fuel profitable growth and extend our PC Plus strategy,” said Lenovo chief executive Yang Yuanqing.

“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 originally bought IBM’s PC and laptop division in 2005 for $1.25bn and assumed $500m of debt from IBM.

Around 7,500 IBM employees, including those based at major locations such as Raleigh, Shanghai, Shenzhen and Taipei, will be offered employment by Lenovo as part of yesterday’s deal.

Analysts said the sale may have been accelerated by IBM’s ongoing weakness in hardware sales, after the world’s biggest technology services company reported a 23 per cent drop in fourth-quarter revenue on Tuesday.

“This divestiture allows IBM to focus on system and software innovations that bring new kinds of value to strategic areas of our business, such as cognitive computing, Big Data and cloud,” said IBM Software and Systems senior vice president Steve Mills.

“IBM has a proven record of innovation and transformation, which has enabled us to create solutions that are highly valued by our clients.”

Michael Dell, founder and chief executive of rival PC maker Dell, said that Lenovo would face difficulties in transitioning its business during an interview with Bloomberg Television.

“Switching from the client-only to client-and-server is a fairly significant shift in terms of the sales motion, the processes in the company so they will have some challenges.”

Credit Suisse and Goldman Sachs advised Lenovo, the PC maker said in its statement on the deal yesterday.