Sale of x86 Business a ‘Win-Win’ for IBM, Lenovo

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China-based computer maker Lenovo is buying IBM’s low-end, x86 server business for $2.3 billion, according to Reuters.

The deal has been a long time coming; it materialized about a decade after Lenovo snapped up IBM’s ThinkPad unit, which was losing money. That purchase helped make Lenovo take the top spot in 2012 among computer manufacturers.

The x86 announcement comes as IBM struggled to make money from the servers, and as it works to become a software and services vendor. At the same time, IBM will get to continue selling the x86 servers.

“IBM does not have the scale to be a low-cost producer,” said Jack Gold, principal analyst of J.Gold Associates. “Volumes are not great enough. Further, IBMs cost of business and overhead give it a disadvantage in the market against Dell, Lenovo, HP, etc. Finally, lower-end servers is not a strategic product line given all the growth areas IBM wants to concentrate on.”

Lenovo expects the x86 acquisition to give it new customers, greater scale and the ability to sell add-on services.

“This is win-win as IBM gets to unload the overhead associated with having a manufacturing line, and Lenovo gets the IBM channel to sell through,” Gold said. “And Lenovo also gets the IBM service organization engaged in making the servers successful in the enterprise. Lenovo also has its eye on its currently biggest competitor HP (with Dell not far behind), and this acquisition gives them a greater breadth of products (and an IBM endorsement) with which to compete.”

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