IBM to offload System x this week: Our sources spill the beans

UK staff expect 'big announcement' on Wednesday, Dell and Fujitsu mentioned


Smart bets are being placed on IBM offloading its System x division this week, amid suggestions that staffers are braced for a grandiose announcement on Wednesday.

Word of buy talks reached the desk of El Chan late last week and over the weekend the Wall Street Journal speculated that Big Blue execs may have re-opened talks with potential buyers.

Senior industry folk tell us that private talks between IBM and several suitors have been taking place in recent months, with Dell and Fujitsu mentioned as serious contenders.

Lenovo, the first company to court Big Blue's x86 biz last spring, has been building local server teams itself and is not believed to have re-engaged after talks stalled last time around over price.

El Chan has been told that senior Big Bluers will go public with the deal when it reports calendar Q4 numbers tomorrow, with people in Blighty to be given the brief the following morning.

"We've been told to expect a significant announcement," said one well placed source close to proceedings.

One of our sources said the usual yearly housekeeping at IBM began on Friday but that System x peeps were told to hang fire, in preparation for the "big news".

According to our contacts, one such move involves Richard Potts, veep for business partners and mid-market who is switching to run central government and defence for IBM. He has been replaced by Jim Edwards.

IBM has a track record of exiting businesses that have become commoditised or deemed non-core to its future direction, as with the printer and PC divisions.

The System x biz hasn't posted meaningful growth since Q3 2011, with revenues coming in flat during Q4 that year and steadily declining ever since throughout the whole of 2012 and the reported first three quarters of 2013.

Big Blue does not break out specific revenues for System x but according to Morgan Stanley estimates, IBM's x86 sales reached $4.9bn in 2012 compared to $15.4bn in the whole Systems Technology Group.

With arch-rival HP accounting for more than a quarter of the server market in unit terms, as of Q4, and with IBM holding just 8.1 per cent, the firm is unable and, importantly, unwilling to compete on volumes.

IBM prefers to try to sell technology on features and functions rather than using price as a competitive weapon, and of all the major server makers has done the best job of protecting margins.

The prospect of large server vendors designing and outsourcing production to Far East ODMs is hardly going to ease pressure on future revenues either, for IBM or any major vendor.

Selling the x86 unit to a private Dell - which already has its fair share of work cut out - would make the combined force the biggest shifter of server boxes on the planet. A deal with Fujitsu would boost the Japanese firm's current market standing on the peripheries and ratchet up its buying power.

Channel sources are rubbing their hands at the prospect of an enlarged player being able to take on HP. "A dominant force is always bad news for competition", said one person.

Folk in channel land felt the same when Lenovo acquired IBM's PC division in the 2000s but it took the best part of a eight years for the Chinese firm to mount a credible challenge to HP.

IBM has not publicly commented about any sale talks concerning System x but CFO Mark Loughridge said last summer that a "big divestiture" the company expected for calendar '13 would not "materialise until next year".

An IBM spokesman told us on Friday that "IBM declines to comment on rumour and speculation". ®

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