China's Lenovo nears deal to buy IBM's server unit

Wednesday, 22 Jan 2014 | 10:44 PM ET

Lenovo Group is nearing an agreement to buy International Business Machines' low-end server business for $2-2.5 billion, a deal that would help the Chinese company counter the shrinking personal computers market, people familiar with the matter said.

The timing of the deal was uncertain, with one of the people saying an announcement could come as early as Thursday. The final price could be close the bottom end of the range, the person said.

(Read more: Lenovo resumes talks to buy IBM unit)

A pair of Lenovo 2-in-1 laptops and tablets.
Getty Images
A pair of Lenovo 2-in-1 laptops and tablets.

Lenovo, the world's biggest PC maker, halted trading in its shares pending an announcement in respect of a transaction. .

The potential deal comes after IBM missed revenue expectations for the fourth consecutive quarter when it reported earnings earlier this week.

A deal for IBM's x86 servers, which power corporate data centers, fits with Lenovo's attempts to remold itself as a force in mobile devices and data storage servers. It also helps IBM's shift away from hardware towards software and services.

(Read more: Lenovo-Blackberry deal a worry for Chinese rivals?)

Reuters had reported on Tuesday that Lenovo had resumed talks to buy the IBM's lower-margin unit after failing to reach an agreement last year following differences on pricing.

Can Lenovo diversify away from PCs?
Marc Einstein, industry principal at Frost & Sullivan, says Lenovo has managed to offset its declining PC business -mainly because of China - and discusses upcoming product launches.

Lenovo's purchase of IBM's Thinkpad PC business in 2005 for $1.75 billion became the springboard for its leap to the top of global PC maker rankings.

Lenovo said earlier this week that it was in preliminary talks about an acquisition. It declined to name the seller but said it was making the statement in response to reports about its potential acquisition of a server business.

(Read more: Lenovo flirts with snapping up BlackBerry: DJ)

Recent reports have also indicated that Fujitsu and Dell are also potentially interested in buying the server unit. IBM declined to comment, while Lenovo was not available for immediate comment.

The timing of the deal was first reported by the Wall Street Journal, citing sources.

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