Lenovo Group Ltd (聯想) is in discussions to acquire International Business Machines Corp’s (IBM) low-end server business and a deal may be signed within weeks, according to a person with direct knowledge of the matter.
Lenovo has completed due diligence, according to the person, who asked not to be identified because the talks are private.
The companies failed to agree last year on a price for the assets, estimated to be worth US$2.5 billion to US$4.5 billion.
IBM is getting rid of businesses with lower profit margins, and focusing on software and services to reverse slumping sales. Lenovo, which began its rise to leadership of the global PC market by acquiring IBM’s unit in 2005, is looking to counter falling industry shipments by expanding into storage equipment and the servers that run corporate networks.
“This transaction would make sense for both parties,” said Alberto Moel, an analyst at Sanford C. Bernstein & Co in Hong Kong. “The logic was there and that hasn’t changed.”
Brion Tingler, a New York-based spokesman for Lenovo, declined to comment. Anthony Guerrieri, a Shanghai-based spokesman for IBM, said the company “does not comment on rumors or speculation.”
Lenovo is only in talks to acquire the x86 server hardware business and not services, and a deal could be signed within a week if terms are agreed, the person said. The person did not have details on the current price or structure of the proposed deal.
A sale would continue IBM’s campaign to exit hardware businesses. Since selling the PC division, it has divested units such as printers and retail-store systems.
IBM’s other businesses also include storage computers and semiconductors.
In October last year, IBM reported sales fell for the sixth straight quarter on slowing demand for hardware. The company lost US$713 million in its hardware business in the first nine months of last year, compared with US$253 million in profit in the previous year.
That may have added pressure for IBM to sell the server unit, said Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial.
“Last quarter, IBM server sales were very weak,” Yang said. “IBM may be looking to cut losses before the erosion gets worse.”
The purchase of IBM’s PC business in 2005 vaulted Lenovo from the No. 8 maker at the time to third. After the acquisition, Lenovo also bought control of Germany’s Medion AG and NEC Corp’s PC division in Japan.
Those purchases helped Lenovo overtake Hewlett-Packard Co for the top spot in PC shipments in the second quarter of last year.
Lenovo kept that spot with 18.1 percent market share in the fourth quarter, helped by a 6.6 percent increase in shipments, researcher Gartner Inc reported this month.
Lenovo chief executive Yang Yuanqing (楊元慶) has said he is now looking for acquisitions to expand beyond that core PC business. Yang wants to double Lenovo’s share of the server market within three years to complement the company’s development into the No. 2 smartphone vendor in China behind Samsung Electronics Co.