Business / Corporate Reports

Lenovo to buy IBM server unit

By Gao Yuan (China Daily) Updated: 2014-01-24 09:32

Lenovo to buy IBM server unit

Workers at the stand of IBM Corp at an exhibition in Germany. Lenovo Group Ltd's acquisition of IBM's server unit is estimated to add $5 billion in operating revenue annually to Lenovo. Thomas Peter / Reuters

Lenovo Group Ltd, the world's biggest personal computer maker, will buy IBM Corp's x86 server unit for $2.3 billion, Lenovo said on Thursday.

The deal - the largest tech acquisition ever by a Chinese company - will help Lenovo add $5 billion in operating revenue annually and have a bigger say in the global IT hardware space, said Yang Yuanqing, chairman and chief executive officer of the Beijing-based company.

"We're satisfied with the price of the deal, because we believe the company has acquired a very good-quality asset," Yang said.

The Chinese company will take in about 7,500 former IBM employees.

"The acquisition was a huge bargain for Lenovo, which is eyeing a bigger presence in the information and communication technology market," said Antonio Wang, associate director and project leader for IDC China's client system research department.

According to estimates by industry insiders, IBM's server unit was thought to be worth as much as $5 billion.

Lenovo will become the third-largest x86 server maker globally and the biggest in China after the deal is closed, IDC said. The company was the seventh largest as of the third quarter of 2013, with 2.6 percent of the global market share.

Texas-based manufacturer Dell Inc was the top server provider in China as of the third quarter of 2013. Dell held more than 20 percent of the nation's x86 server market at that point, data from IDC showed.

"Lenovo will recover its investment in about five years as the unit is able to generate $300 million to $500 million in annual profit," Wang added.

Yang was more conservative about the unit's profitability, saying the business barely earned profits for IBM over the past quarters, but he added the company is confident about the unit's long-term earning potential.

"We'll enjoy a sharper growth curve in the server sector than in the PC market, because Lenovo has become a global company and is more experienced now," Yang added.

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