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1/23/2014
09:06 AM
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Lenovo To Buy IBM's x86 Server Business

IBM will shed its low-margin, low-end server business for $2.3 billion after more than a year of on-again, off-again negotiations with Lenovo.

IBM announced Thursday that Lenovo has agreed to buy IBM's x86 server business for $2.3 billion. The deal will get IBM out of a low-margin business in which revenue declined 16% last year.

The business Lenovo is acquiring includes System x, BladeCenter, Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking, and maintenance operations. IBM had hopes of selling the x86 business last year, but widely reported negotiations with Lenovo broke down, and IBM announced in May it would not realize what it hoped might be a $5 billion divestiture.

IBM will continue to develop its Windows and Linux software portfolio for the x86 platform. It will also continue to sell several systems based on x86 processors through its PureApplication and PureData appliances, high-margin products that also include IBM software.

[Want more on IBM's hardware-related moves? Read IBM Plans Layoffs, New Investments.]

"IBM is a leading developer of software products for x86 servers with thousands of products and tens of thousands of software developer and services professionals who build software for x86 systems," IBM said in a statement.

IBM said the two companies will enter into a strategic relationship, which will include a global OEM and reseller agreement for sales of IBM's entry-level and midrange Storwize disk storage systems, tape storage systems, General Parallel File System software, SmartCloud Entry offering, and IBM system software including Systems Director and Platform Computing solutions. 

Lenovo's enterprise-class server business is about to expand.
Lenovo's enterprise-class server business is about to expand.

Once the deal is closed, Lenovo will take over customer service and maintenance operations for the x86 business, though IBM said it will continue to provide maintenance delivery on Lenovo's behalf for "an extended period of time." Approximately 7,500 IBM employees in locations including Raleigh, N.C., Shanghai and Shenzhen, China, and Taipei, Taiwan, are expected to be offered jobs with Lenovo. 

The deal with Lenovo comes nearly 10 years after Lenovo agreed to purchase IBM's PC business in 2005. Once again it's a case of IBM shifting out of a commodity business so it can focus on high-margin, high-value businesses. The company cited its just-announced $1.2 billion investment in its SoftLayer cloud business and its recent $1 billion investment to build a Watson cognitive computing business as cases in point.

Doug Henschen is executive editor of InformationWeek, where he covers the intersection of enterprise applications with information management, business intelligence, big data, and analytics. He previously served as editor-in-chief of Intelligent Enterprise, editor-in-chief of Transform magazine, and executive editor at DM News.

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cbabcock
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cbabcock,
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1/23/2014 | 2:19:39 PM
A seismic shift in x86 server production
While expected, it's still hard to conceive of the x86 server business with iBM on the sidelines. Margins have been razor thin and pressure from white box producers has been growing. Avnet has a major production facility in Chanlder, Ariz. Quanta manufactures on Taiwan. Both are ODMs or open design manufacturers. You select the design. They'll produce the servers. Are these the future powerhouses of x86 server production, along with Lenovo in China? 
D. Henschen
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D. Henschen,
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1/23/2014 | 3:56:13 PM
PureData includes x86 options
I should clarify that the PureData and PureApplication System lines include both x86 and Power (AIX- Unix) based options. PureData System For Analytics powered by Netezza, for example, is a Linux-based system based on x86. Oracle, too, is all but out of the x86 server business, yet its Exadata and Exalytics "engineered systems" are based on x86. The real value and margin in both the IBM and Oracle appliances is in the prepackaged software bundle.
Server Market Splitsville
Server Market Splitsville
Just because the server market's in the doldrums doesn't mean innovation has ceased. Far from it -- server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary driver is now service providers, not enterprises.
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