IBM, Lenovo x86 Server Deal to Close Oct. 1

Lenovo officials said the Chinese PC maker’s $2.3 billion deal to acquire IBM’s (IBM) x86 server business has cleared regulatory and security approvals and will close on Wednesday, Oct. 1, albeit at a slightly reduced price.

The actual purchase price turned out to be $2.1 billion, owing to a change in the value of existing inventory and deferred revenue liability, Lenovo said. Under terms of the deal, IBM will receive some $1.8 billion in cash with the remaining amount doled out in stock.

Officials said IBM’s x86 executive team, some 6,000 staffers, its security portfolio and intellectual property folder of about 1,100 patents were included in the deal and will move under the Lenovo umbrella. The Lenovo x86 server team will be run by Adalio Sanchez, who headed IBM’s x86 server business and will continue in the same role. Sanchez will report to Gerry Smith, Lenovo Enterprise Business Group president.

In a conference call, Smith outlined Lenovo’s five-point plan to breathe life into the x86 server business, including leveraging the newly combined sales forces of the two companies to sell the System x and ThinkServer lines into new customer segments; plying the advanced technology wedge of the market; mining profit from maintenance and service business; investing in research and development to improve x86 server designs; and using its efficiency model to boost productivity and margins.

“Lenovo has big plans for the enterprise market,” said Smith. “Over time, we will compete vigorously across every sector, using our manufacturing scale and operational excellence to repeat the success we have had with PCs.”

Smith termed the acquisition as a “great opportunity” for Lenovo’s channel partners, giving them access to an expanded technology portfolio and new customers.

Lenovo has acquired IBM System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations. IBM will retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, PureApplication and PureData appliances.

In addition, the deal enables Lenovo to act as an x86 server OEM for IBM and gain access to resell selected products from IBM’s storage and software portfolio, including its entry and midrange Storwize storage product family, Linear Tape Open (LTO) products, flash storage arrays and Smart Cloud, General Parallel File System and Platform Computing solutions. IBM will continue to provide maintenance delivery on Lenovo’s behalf for an extended period of time to ease the transition.

The purchase immediately vaults Lenovo into the third spot in worldwide server revenue, based on researcher IDC’s figures for Q2 2014. Sales of x86 servers increased 9.6 percent during the period to $10 billion and unit shipments ticked upward 1.5 percent to 2.2 million servers, IDC said. Hewlett-Packard (HPQ) led the market with 29.2 percent revenue share based on 7.4 percent revenue growth from last year, while Dell retained second place with a 22.5 percent revenue stake. IDC expects the x86 worldwide server market to reach $42 billion in 2014.

Lenovo chief executive Yang Yuanquing said the Chinese manufacturer plans to take in some $5 billion in x86 sales in the first year and produce profit margins higher than its PC business. Lenovo’s expectation is to leverage IBM’s former x86 portfolio to win business accounts away from HP and Dell and to deliver a profit through the same efficiencies it’s used with its PC operation.