Chinese Regulators Approve Lenovo IBM Server Deal

Chinese regulators have approved Lenovo’s $2.3 billion buyout of IBM’s x86 server business, the next-to-last hurdle for the deal’s final approval with only the nod from U.S. officials remaining.

Reuters reported that the Chinese Ministry of Commerce’s anti-monopoly bureau has approved the deal, which initially was announced last January. Lenovo chief executive Yang Yuanquing said last week he doesn’t expect the transaction to hit regulatory snags and will close by the end of this year.

U.S. regulators are expected to closely examine the deal with an eye toward national security issues and whether or not it will give Chinese cyberspies an open door to IBM-branded U.S. government servers. The agreement calls for Lenovo to take over maintenance of IBM servers, a part of the transaction that may not pass U.S. security muster. The Chinese state-owned Academy of Sciences holds a sizeable stake in Lenovo.

Yang dispelled the possibility that U.S. security concerns will derail the deal. At a press conference last week, he said, “If you look at our history, with domestic and overseas clients, there have never been any issues regarding security.”

The deal, which comes eight years after Lenovo bought IBM’s ThinkPad business in 2005 and ran with it, involves IBM’s System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and related software, blade networking and maintenance operations.

IBM will hold on to its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers and PureApplication and PureData appliances.

Lenovo already has offered jobs to some 7,500 IBM employees worldwide affected by the acquisition, including personnel located in Raleigh, North Carolina, and Shanghai, Shenzhen and Taipei, China.

The acquisition gives Lenovo an instantly recognizable presence in the x86 server market, and opens up new data center revenue sources for the vendor as it looks for safe harbors to compensate for the flagging PC market and its limited position in the smartphone and tablet segments.

In the ensuing months since the deal was struck, Hewlett-Packard (HPQ) chief Meg Whitman repeatedly has swiped at its underpinnings. Earlier this year, Whitman told analysts there was a “real near-term opportunity for HP to actually gain share among some of our competitors who appear to be a little less stable than we do right now,” in a thinly veiled reference to IBM’s troubled hardware business. The message has grown into a refrain Whitman has repeated a number of times in other settings.

Lenovo subsequently fired back. In a memo, Gerry Smith, the company’s Enterprise Business Group president, urged its server sales team to ignore the “uncertainty and doubt” competitors were peddling in the acquisition’s wake. “As the old saying goes, those who live in glass houses shouldn’t throw stones,” Smith wrote.

IBM channel chief Mark Dupaquier, not the most visible of big time channel execs, blogged recently about a new web page called “Transitioning x86 to Lenovo,” the vendor has set up devoted to answering channel partners’ questions on the deal.

“Lenovo will become IBM’s preferred x86 server vendor after the transaction closes, and we remain confident that the server systems transitioning to Lenovo will have a strong future,” he wrote.

The web page provides details of the sale, along with more information on why IBM made the move, which products are involved and the mechanics of the transition.