Lenovo has finally acquired IBM’s low-end server business, after a deal spanning over a year has finally come to a close. The final acquisition price came to $2.3 billion, making it the largest tech server acquisition by a Chinese company.
IBM has been trying to shift its x86 server business for a few years now, with more companies switching to cloud computing technology from traditional server-side infrastructure. IBM is looking to invest more money in high-margin servers, which still generate impressive revenue.
Lenovo has more reason to own low-end x86 servers, given their high reputation in China, it will be easier for the company to sell their servers to Chinese companies, who are looking to nationalize their servers with the recent U.S. surveillance outbreak. Lenovo may be able to boost revenues and margins on the x86 servers if they invest heavily in China. Most Western companies are now either moving to high-end servers, their own or cloud based infrastructure, adding more benefits to the user.
IBM has been a stepping stone for Lenovo’s success before, in 2005 the Chinese company acquired IBM’s ThinkPad PC business for $1.75 billion, bolstering their position in the PC market from unknown to first place. This is not the first time Lenovo has tried to purchase the business, last year IBM offered it out to the company for $6 billion, but Lenovo declined. In one straight year, the price has dropped by more than half, analysts believe this is due to higher grossing cloud computing firms and more companies looking to newer and faster technologies.
Hewlett Packard is currently the major player in the x86 server business with IBM second, although their position may drop due to this large scale acquisition. Lenovo is currently not in the top five, but given the amount they are prepared to invest, we could see a repeat of the PC market battle.
Analysts predict the x86 servers bring in around $4 billion in revenue annually. As the PC market dwindles, Lenovo is looking to invest more in back-end technology and mobile, making sure they have their backs covered when the PC dies.
By Walter Bailey