Lenovo Confirms Talks To Buy Server Business


Responding to a CRN report that Lenovo has emerged as the top candidate to buy IBM's x86 server hardware business, Lenovo Chairman and CEO Yang Yuanqing said the China-based computer giant is in "preliminary negotiations with a third party in connection with a potential acquisition."

The statement from Yang came in response to what he called a "possible acquisition by the company of [a] certain computer server business" after CRN Thursday reported that IBM is in "active negotiations" to sell its x86-based server business, with Lenovo the most likely buyer.

"The Board would like to inform the shareholders of the company and potential investors that the company is in preliminary negotiations with a third party in connection with a potential acquisition," said Yang in the statement. "As at the date of this announcement [April 19], no material terms concerning the potential acquisition have been agreed and the company has not entered into any definitive agreement in relation to the potential acquisition."

Lenovo is currently the only company in negotiations to purchase IBM's x86 server business, according to one high-ranking executive tracking the deal, who spoke to CRN on condition of anonymity earlier this week. The deal would likely encompass IBM's System x line, which includes Intel- and AMD-based tower, rack and blade servers. IBM is reportedly seeking $5 billion to $6 billion for its x86 server business, the executive said.

IBM CFO Mark Loughridge Thursday declined to comment on the CRN report when asked about it by a financial analyst on the company's first-quarter earnings call.

Loughridge, however, confirmed the divestiture of poorly performing businesses is planned for the current quarter.

"There are parts of our business that are in transition or have been underperforming, like elements of our Power, [System] x and storage product lines that showed disappointing performance in the first quarter," Loughridge said. "Here we're going to take substantial actions," he said, without offering details.

IBM's total systems sales were down down 13 percent in the first quarter compared with the year-ago quarter. Hardest hit were sales of the company's Power systems, which plunged 32 percent year-over-year. Revenue from System x sales was down 9 percent, and sales of storage systems decreased 11 percent.

At several points during the earnings call, Loughridge referred to coming "divestitures" and made it clear that "workforce rebalancing," which is IBM-speak for layoffs, is planned for the current quarter. He said onetime charges for costs associated with those cutbacks will be taken against second-quarter results.

IBM has said the workforce rebalancing is expected to result in a $1 billion charge, mostly concentrated in the current quarter.

KEVIN MCLAUGHLIN and RICK WHITING contributed to this story.

PUBLISHED APRIL 19, 2013