Source says Lenovo may bid for IBM’s server business

Bloomberg

Sat, Apr 20, 2013 - Page 15

Lenovo Group Ltd (聯想), the Chinese PC maker, is the most likely bidder for parts of International Business Machines Corp’s (IBM) server division, a person familiar with the matter said.

The business, which sells servers running x86 processors to store corporate data and run computing functions, may fetch US$2.5 billion to US$4.5 billion depending on what assets and liabilities are included, said the person, who asked to not be named because the talks are private. An agreement may still be several weeks away, the person said.

Lenovo shares surged.

Lenovo, which used the 2005 purchase of IBM’s PC unit as a stepping stone to become the world’s second-largest producer, is diversifying with new products, including tablets and smartphones.

The company last year allied with EMC Corp to boost sales of storage equipment and servers that run corporate networks, and buying IBM’s business would further bolster its capabilities, said Alberto Moel, an analyst at Sanford C. Bernstein & Co in Hong Kong.

“Low-cost servers are the fastest-growing, most attractive area of the server business right now, so this would make sense,” Moel said. “This is consistent with Lenovo’s strategy of moving into things that are growing and going new places.”

Lenovo rose 7.6 percent to HK$6.94 as of 1:45pm in Hong Kong trading, the largest gain since Sept. 27, 2011. The shares have dropped 1.3 percent so far this year, compared with the 3.9 percent decline in the benchmark Hang Seng Index.

The popularity of cloud computing, the use of software that customers access online instead of storing it on their own servers, is driving demand for low-cost, energy efficient servers from companies ranging from Amazon.com Inc to Google Inc, to Facebook Inc, Moel said.

Lenovo is now the second-biggest PC maker behind Hewlett-Packard Co. It was the only top-five manufacturer not to see a drop in shipments last quarter, according to research firm IDC.

The talks were previously reported in CRN, a publication aimed at technology integrators.

In response to the story, Lenovo said it was in “preliminary” discussions about a potential acquisition with a third party, which it did not name.

“No material terms concerning the potential acquisition have been agreed and the company has not entered into any definitive agreement,” Lenovo said yesterday in a statement.