Lenovo haggling with IBM over price of System X... AGAIN

Reveals talks with unnamed party of stock exchange filing - widely thought to be Big Blue


High-flying PC maker Lenovo has confirmed it has re-taken a seat at the negotiating table with an unnamed server vendor, widely believed to be IBM.

That Big Blue is committed to offloading its System X unit - the x86 division that was the subject of sale talks with Lenovo last year - would come as no surprise to anyone involved in the server channel.

The pair previously haggled over the price but failed to reached an agreement, meaning that IBM clung onto the business for more quarters than it wanted, seeing shipments and revenues erode further, and consequently the sale price it can now demand.

In a Hong Kong Stock Exchange filing last night, Lenovo noted industry chatter linking it with a "certain computer server business".

It added, "the company is in preliminary negotiations with a third party in connection with a potential acquisition...no material terms concerning the potential acquisition have been agreed and the company has not entered into any definitive agreement".

This would be the second biz IBM has sold to Lenovo nearly a decade after flogging the PC division for $1.75bn - clearly IBM has no appetite to slug it out in commodity hardware markets.

It took the best part of seven long years for Lenovo to get its act together, but when it did, the Chinese dragon mounted a challenge to HP and last year became the world's biggest shifter of PCs.

However, Lenovo is wholly reliant on PCs, a market that as a whole has been in decline for three years and is one where margins are already wafer thin. The firm needs to spread its tendrils.

Building a volume server business has proved more elusive for Lenovo, and it remains a bit part player, nestled outside of the top five largest vendors.

It started to assemble its own local server sales and marketing teams last year, under the guidance of former Acer veep Gianluca Degliesposti who joined as the exec director of server and storage EMEA.

Sources told us yesterday that they expect IBM to make a big announcement during its earning call tonight and UK staff were expecting to be briefed about the changes tomorrow.

But given the nature of the prelim talks that Lenovo spoke of, it is not clear if the Chinese firm has entered the affray late this time around, with sources speculating that Dell and Fujitsu are also involved. Multiple suitors would strengthen IBM's hand.

According to reports, analysts estimate the buy price to be between $2.5bn to $3bn, which is way down on the $4bn to $6bn range that was much reported when the sale of System X collapsed in 2013.

Though unable to comment on vendor negotiations, Errol Rasit, research director at Gartner, said the server market had proved challenging for all established vendors.

He talked of a growing threat from new entrant Cisco, while Lenovo and Huawei were making ground in the fast growing Chinese server market to threaten international players.

A "shift" from customers to buy servers direct and to their specifications from ODMs, together with the proliferation of the cloud "consumption model" were also altering the dynamics of the server market.

HP and Dell reacted to this by offering customised kit, "IBM took the choice to stay in high value [sales] and focus on large enterprise", said Rasit.

According to Gartner data, IBM turned over $5.5bn worth of x86 sales in 2010 compared to market leader HP's $11.98bn, but by 2012 Big Blue's revenues has risen to $5.6bn - while HP's haul came in at $12.17bn.

IBM's sales numbers showed that System X revenues have declined every quarter since Q4 2011. ®

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