Lenovo Group Ltd negotiates the acquisition of an IBM server unit

Lenovo Group Ltd is currently negotiating with International Business Machines Corp. in order to acquire its low-end server business. According to a person familiar with the matter, a deal may be signed within a few weeks.

Currently, Lenovo Group is considered the largest personal-computer manufacturer in the world. The person, who asked not to be named, because the negotiations are not public, said that the company managed to appraise its business. Last year, the two companies failed to agree on a price for the assets, which are said to be worth between 2.5 billion dollars to 4.5 billion dollars. No details on the current price or the structure of the deal were given by the person familiar, but the company is only in talks to acquire the x86 server hardware business.

Yang Yuanqing, Lenovos Chief Executive Officer, said that he was looking for new acquisitions as the company tries to offset decreasing global PC shipments by expanding into storage equipment and corporate networks servers. Yang has set a goal of doubling the companys share of that market in three years in order to help the company stay the second largest smartphone vendor on the Chinese market after Samsung Electronics Co.

A spokesman of Lenovo in New York – Brion Tingler, refused to comment on the information. Anthony Guerrieri, who is one of the spokesmen of International Business Machines Corp.(IBM) in Shanghai, said that the company “does not comment on rumors or speculations”.

One of the analysts working for Sanford C. Bernstein & Co. – Alberto Moel, said for Bloomberg: “Lenovo has been trying to break into servers for a while as a new growth engine. The logic was there and that hasnt changed in the last eight months. This transaction would make sense for both parties, and it could be good for Lenovo based on the right price.”

International Business Machines Corp. announced in October 2013 that their sales decreased for the sixth straight quarter due to weak demand for computer hardware. The company reported it lost 713 million dollars in its hardware business from January to September 2013 compared with a 253-million-dollar profit it posted during the same period in 2012.

Stephen Yang, an analyst working for Sun hung Kai Financial in Hong-Kong, said that the 713-million loss is a factor that have added more pressure on International Business Machines Corp. and forced the company to sell the server unit. Mr. Yang said for Bloomberg: “Last quarter IBM server sales were very weak. IBM may be looking to cut losses before the erosion gets worse.”

Lenovos shares closed at HKD 10.18 in Hong Kong trading today, up 1.39% on the day, and its one-year return rate is up 36.44%.