Friday, April 19, 2013

IBM In Talks To Sell x86 Server Business To Lenovo

IBM (NYSE:IBM) is in active negotiations to sell its x86 server hardware business, and Lenovo has emerged as the top candidate to buy it, multiple sources with knowledge of the situation told CRN this week. Lenovo is currently the only company in negotiations to purchase IBM's x86 server business, according to one high-ranking industry executive tracking the deal, who spoke on condition of anonymity.

The deal would encompass IBM's System x line, which includes Intel- and AMD-based tower, rack and blade servers. IBM is reportedly seeking $5 billion to $6 billion for its x86 server business, the executive said.

Lenovo emerged as a desirable candidate because IBM is only interested in selling its x86 server business to companies it doesn't view as a threat to other parts of its business, the executive said. Lenovo fits that bill since it doesn't have storage, networking or converged infrastructure in-house, nor does it have much of a footprint in the data center, the source said.

IBM also has informed employees in its 20,000-square-foot server product engineering (PE) lab, located in its massive Building 201 facility in Research Triangle Park, N.C., that they will become Lenovo employees effective June 1, a separate source with knowledge of the matter told CRN.

Lenovo's North America headquarters is located in Morrisville, N.C., about five miles from Research Triangle Park.

IBM, which will report first-quarter earnings for fiscal 2013 Thursday afternoon, didn't respond to a request for comment. A Lenovo spokesperson declined comment, citing the company's policy of not responding to rumors or speculation.

IBM's PE lab, which supports all of the vendor's server lines, including the System x, System i, System p and System z, is where hardware and software engineers re-create customer problems in order to solve issues that can't be handled by IBM's Tier 1 to Tier 3 IBM support teams, the source told CRN.

IBM plans to continue providing high-margin server services, and once it sells the System x line it will focus on configuring, testing, installing and managing solutions, but not manufacturing the hardware product components, the source said.

System x sales declined 3.7 percent overall in IBM's fiscal 2012 -- 2.7 percent when adjusted for currency fluctuations. Overall, IBM's Systems and Technology sales were down 7 percent to $17.7 billion in fiscal 2012.

IBM is looking to decrease its focus on hardware as part of its Roadmap 2015 (a plan some employees have branded "Roadkill 2015"), first announced in 2010 by then-CEO Sam Palmisano. The plan calls for boosting earnings per share to $20 and growing revenue in cloud, analytics and Smarter Planet solutions.

IBM has cut staff and is expected to shed some business lines as part of the overhaul that Roadmap 2015 represents, one source close to IBM told CRN. "People have been expecting some kind of sell-off," said the source.

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