Report: Lenovo, IBM Resume Server Unit Buyout Talks
January 21, 2014 11:14 AM
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Analysts say deal is worth $2.5 to $3 billion
Sources that claim to be familiar with the negotiations are reporting that Lenovo has resumed talks to purchase IBM’s low-end x86 server unit. The move by Lenovo is seen as an attempt to branch out from the sagging computer market (to be fair, Lenovo has been
weathering the storm better than most
The two firms were in negotiations last year, but failed to come to an agreement on price. Reports last year during negotiations tipped that IBM wanted $4 billion to $6 billion for the server division. Lenovo was reportedly holding firm with a $2.5 billion offer.
Analysts are now expecting the sale to be in the $2.5 billion to $3 billion range.
"Everybody wins because even if IBM could double the profitability it's still not good enough for IBM. On the other hand, Lenovo doubling the server business margins is a good deal for Lenovo," said Alberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein.
Neither IBM nor Lenovo have offered any official comments on the deal.
Lenovo could finance the deal with a combination of cash, debt, and converts according to analysts.
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1/21/2014 11:53:24 AM
Not really. Most of IBM's revenue is services. And then software.
1/21/2014 2:37:39 PM
Yep, servers are now a small part of IBM's revenue.
The revenue break down in 2012 was:
Systems, Storage and Semiconductors 17%
From the multiple articles I have read on this, it looks like IBM is looking at selling off just their low-end(commodity) x86 business. While volume-wise this is the bulk of their systems, it's less than a third of their server revenue. Compared to the other HW they sell they provides low margins and don't add all that much to their software or service businesses.
1/21/2014 4:04:08 PM
x86 is a low-margin market.
If you want another AS/400 though...there's only one place you can get one. And IBM makes a nice tidy profit off of each one.
Low-volume, high margin vs. high-volume, low margin.
It really makes little sense for IBM to even bother with the x86 market. They don't really have any value-add there. A Windows server is a Windows server. Leave that stuff to the fungible commodity OEMs like Dell and HP.
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