Lenovo Agrees to Purchase IBM’s Low-End Server Business for $2.3 Billion

By E.J. Thomas

After months of speculation and disagreements over the final purchase price, IBM has agreed to sell its low-end server business for $2.3 billion to Chinese PC manufacturer Lenovo. If the acquisition is approved, it will be China’s largest technology deal ever.

News of Lenovo’s interest in IBM’s server business first broke in April 2013, with Bloomberg reporting a potential selling price between $2.5 billion and $4.5 billion.

IBM had originally hoped to sell its low-end server business, which includes the x86 servers, System X, BladeCenter, and Flex System blade servers and switches, for around $4 billion.

IBM has slowly been moving away from its less profitable hardware businesses to focus more on its software and cloud computing products. When IBM and Lenovo started publicly discussing the deal, IBM’s total hardware revenue had fallen 17 percent in the first quarter of 2013. In January, IBM reported a 5 percent decline in 2013 revenue, largely from its servers and other hardware products.

This is not Lenovo’s first acquisition of an IBM business. Lenovo—now the world’s largest PC manufacturer—first entered the global market after purchasing IBM’s PC division in 2005. This moved Lenovo from the world’s eighth-largest PC maker to the world’s third-largest. After acquiring Germany’ Medion AG and NEC Corp’s PC division in Japan in 2011, Lenovo soon overtook Hewlett-Packard to become the world’s top PC manufacturer.

Lenovo’s purchase of IBM’s server business must still be cleared by the Committee on Foreign Investment in the United States (CFIUS). In an interview with Reuters, international compliance lawyer John Reynolds said the deal is “more likely to get through CFIUS without major problems than the 2005 transaction.” Reynolds, a partner at Davis Polk & Wardwell, also said that Lenovo poses relatively little national security risk, as the company is now fairly well known within the United States.

However, others are not as optimistic about the deal clearing CFIUS. Citing new CFIUS rules and concerns regarding Chinese cyberattacks, Farhad Jalinous, partner at Kaye Scholer LLP, said in an interview with the Wall Street Journal, “The result of the transaction that you had in 2005 may not be the result that you get in 2014, even if the buyer is the same.”