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IBM To Hand Off Its x86 Server Business to Lenovo

IBM's long-expected departure from the x86 server business is official. The company today said Lenovo will acquire the commodity business for $2.3 billion, nine years after the Chinese company bought IBM's then-struggling PC business.

The deal includes all IBM servers designed to run Windows and Linux, though the company is not selling off its high-end server business running its Power processor, which runs both Unix and Linux. By selling off its commodity server business, so goes IBM's last major tie to Microsoft as an official partner. All the same, many of IBM's wares and services sit side-by-side with Microsoft-based systems and Big Blue's consulting and services business supports Redmond's key product lines as well. Just last week, IBM said it will support Microsoft's Dynamics product line.

Lenovo is picking up IBM's BladeCenter and Flex System blade servers and switches, Flex-integrated systems, NeXtScale and iDataPlex servers and related software, the company said. The deal also includes IBM's blade networking and maintenance operations. 

In addition to retaining its Power Systems, IBM said its hardware portfolio will include its System z mainframes, storage, PureApplication and PureData appliances. Talks of a deal started to surface earlier this week after falling apart a year ago. As IBM apparently seemed willing to lower its asking price, according to The New York Times, other players including Dell and Fujitsu expressed interest. Instead, IBM decided to finish its aborted negotiations with Lenovo.

It's hardly surprising that IBM decided to exit the server business, given its legacy of focusing on higher margin hardware, software and services. Just as Lenovo used the acquisition of IBM's PC business to expand its line of desktops, laptops and giving it an entry into the tablet market, it will be interesting to see how aggressively Lenovo moves to undercut Cisco, Dell and Hewlett Packard.

"Competition will remain fierce, with no tendency for oligopolistic behavior among the remaining participants," said Forrester analyst Richard Fichera, in a blog post. "Overall server market volumes will not change as a result of this acquisition."

As part of the deal, Lenovo will also resell IBM's Storwize disk storage systems, tape storage, General Parallel File System software, SmartCloud Entry offering and other components of IBM's system software offerings such as its Systems Director and Platform Computing offerings. 

Posted by Jeffrey Schwartz on 01/23/2014 at 12:38 PM


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