Report: IBM, Lenovo x86 server deal hits the skids

Or, maybe the Great Wall of China


Only late last week, the scuttlebutt was that IBM and Lenovo Group were moving along at a rapid pace so Big Blue could offload all or part of its System x x86 server business to the Chinese builder. Now, the latest word is that the deal has stalled as the two companies are haggling about the price.

The first rumors about a potential deal between IBM and Lenovo surfaced on April 18 at CRN and the normally chatty IBMers we know went into lockdown mode, no doubt after seeing server chief Bob Moffat go to the slammer for six months after blabbing about deals IBM was doing with Advanced Micro Devices and Sun Microsystems.

The Wall Street Journal was able to get someone to confirm that some kind of deal was going down soon after CRN's story broke. IBM refused to comment on the matter, and all Lenovo told the Hong Kong stock exchange, where its shares are traded, was that it was talking to someone about buying something.

On April 25, CRN reported that the IBM-Lenovo deal was "moving quickly" and could be announced at any time, citing anonymous sources familiar with the matter.

By Wednesday afternoon, Fortune cited its own sources who claim that talked between IBM and Lenovo have broken down over the value of the x86 server business. The original reports out of CRN said that the deal could be worth something on the order of $5bn to $6bn, and later reports put the number at between $2.5bn and $4.5bn.

Buying IBM's x86 server business is the quickest way for Lenovo to rocket up the rankings and become the number four server maker in the world, behind IBM and far behind Hewlett-Packard and Dell. The deal would make Lenovo the number three x86 server maker instantly.

The presumption out there is that IBM is losing money on x86 servers and is sick of it. That was the same reason that IBM sold off its PC business to Lenovo at the end of 2004 for $1.25bn.

If Lenovo doesn't want the IBM System x rack and tower business, maybe Dell does. But then again, Dell is more interested in buying itself than it is in buying customers these days. And HP doesn't have money to buy jack.

If Lenovo doesn't buy the IBM x86 server business outright, it would not be a surprise to see Big Blue shift all System x manufacturing – and maybe BladeCenter, FlexSystem, and Power Systems manufacturing – to Lenovo instead.

What you can be sure of is that IBM is trying to get some kind of leverage in China, which is a fast-growing and large IT market upon which IBM has come to depend for growth. IBM would clearly throw System x servers under the bus to save its Smarter Planet schemes in the Middle Kingdom. (We are not saying this would be a smart thing to do.)

We'll see what happens, or maybe we will never know because no deal at all gets done. ®


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