Last Updated on 08/02/2014
After purchasing IBM’s PC business for $1.75 billion in 2005 IBM and Lenovo have struck a new deal with the Chinese company picking up the American company’s low-end x86 server business for $2.3 billion. The deal was officially announced on Thursday 24th of January, but was leaked the day before. The deal for the x86 involves $4.6 billion in annual revenue transfer and the movement of 7,500 employees to Lenovo.
Several thoughts on this:
- This deal further solidifies China’s reputation as a ‘hardware’ country. X86 is the name for a range of microprocessors, which are based on an early Intel design and lead these days by Intel and AMD. While other countries have become known as centres for software development China’s concentration of manufacturers and large ‘iron’ companies has given it a reputation as a hardware centre of gravity. Ironically, Lenovo will now utilize the new line to go after the mobile market where software and applications have been drivers.
- IBM is again evolving by weaning itself of its lower end offerings. From low-end applications to desktops and notebooks and now servers IBM keeps moving up. Servers are now considered the low-end of the market.
- In contrast, Lenovo is moving upmarket. The PC company is now also a server company. Lenovo is also a competitor in smart phones worldwide. It holds second place in the Chinese market. In 2013, the Chinese company tried unsuccessfully to purchase Canada’s Blackberry. The move was blocked by the Canadian government, but given how Lenovo and IBM reportedly went back to the table in late 2013 for another round of talks one could speculate regarding the cash outlay’s source.
- Lenovo’s move into the server business worldwide represents a growing danger to Dell, HP, Acer and Sony. Note that Lenovo is already the leader in PC shipments worldwide, but this move will take away some of the sales leverage its competitors have had trying their ‘complete solution’ sales pitch on customers. Lenovo has had its owns server business, but just like with IBM’s ThinkPad line, offering “IBM” server technology and design takes the Chinese firm to a new level of credibility.
Addendum: A week later Lenovo took Motorola’s hardware handset business off Google’s hands. This reinforces further the notion that Chinese companies, including Lenovo, are focused on hardware. Presumably, Motorola’s phones will continue to be run by Google’s Android software. Moreover, it proves the folly of a company rich with cash (Google) reacting to the developments around it (Microsoft and Nokia), patent purchases by competitors and Apple’s dominance – as opposed to executing its own agenda. Google is hanging on to Motorola’s patents, but they are not worth $10 billion (the difference in amount between what Google paid and what Google received including $2 billion in losses since and a $2 billion hardware sale in the interim) indemnification or not as they are mostly older patents.
What cannot be good for Microsoft: It was announced that Google is purchasing a 5%+ stake in Lenovo. Could Lenovo now load Chrome unto PCs? Moreover, Sony quickly exited the laptop and desktop market. It is selling its computer business to a new entity, which will only compete in Japan.
