Lenovo to acquire IBM server unit in a 2.3-billion-dollar deal

The largest maker of personal computers in the world – Lenovo Group Ltd announced that it has agreed to buy the low-end server business of International Business Machines Corp. for 2.3 billion dollars, while at the same time the PC industry is going through its worst decline ever.

The two companies made a statement that about 2 billion dollars of cash plus Lenovo shares are included in the price of the deal. They also said that the purchase adds International Business Machines Corp.s business using x86 processors as well as System x, BladeCenter and Flex System blade servers and switches that run corporate computer networks.

Yang Yuangqing, who is the Chief Executive Officer of Lenovo, has managed to predict the global PC industry decline. He also managed to maintain the companys growth by expanding his ThinkPad notebooks into the European and South American markets, while adding mobile devices.

Thanks to that, the company is now attacking a business with wider profit margins than PCs. Lenovo Group posted an increase of its annual revenue estimated to 4.6 billion dollars due to offering storage equipment and servers via Lenovos largest acquisition yet. Mr. Yang has been trying to increase the companys share of the global server business to between 5% and 10% within three years. This makes the deal between Lenovo and International Business Machines Corp. even a greater success, because it beats the CEOs goal by itself.

Thanks to Chief Executive Officer Yangs efforts, currently Lenovo is the worlds largest personal computers manufacturer. Its rise started with the acquisition of International Business Machines Corp.s PC unit for 1.25 billion dollars, excluding debt. Until now, this was the largest companys transaction, which helped Lenovo to occupy the third place, after being the No. 8 maker at the time.

One of the analysts working for Sanford C. Bernstein & Co. – Alberto Moel – commented the purchase: “This deal is relatively transformational for Lenovo. If Lenovo can control expenses and enjoy some of the higher gross margins in this business, which are above Lenovos PC margins, then this could be a very good deal for them.”

Peter Hortensius, who is the companys Senior Vice President, said in a phone interview that Lenovo is expected to get about 13$ of the market when the deal is finalized, which is a great success, especially considering the fact that it has less than 2% now.