Lenovo seeks takeover of IBM's low-end server division

Want China Times, Staff Reporter 2014-01-24

Lenovo's booth at the 2014 International CES in Las Vegas, Jan. 7. (Photo/Xinhua)

Lenovo, China's leading IT firm, is reportedly seeking to acquire the lower-end server division of IBM with an offer worth up to US$2.5 billion.

The move follows the takeover of IBM's PC division for US$1.25 billion (10 billion yuan at the then exchange rate) in 2005, which despite subsequent controversy helped propel Lenovo to the world's largest PC maker in 2013.

Industry insiders characterize Lenovo's strategy as one of "eating leftovers," or the acquisition of marginal lines of market leaders before restructuring operations to make up for their own weaknesses or facilitating their entry into a brand new field. The main goal of Lenovo, say insiders, is acquisition of technologies, thereby saving R&D time for developing the capability of business solutions and deployment in the IT service sector.

Lenovo has adopted the strategy in order to facilitate its entry into the IT service sector, breaking the development bottleneck facing the company and other PC giants such as HP and Dell.

Both HP and Dell are likewise gearing up to enter the IT service sector and have continually acquired enterprises in fields such as cloud computing, mega data, solutions,and server frameworks, at costs of up to billions of US dollars in recent years.

Prompting the companies to enter the sector is its huge potential and IBM's extraordinary success following its restructuring several years ago. Market demand in China is extraordinary. In 2012, a group purchasing website in China spent 60 million yuan (US$10 million) to have IBM set up an ERP (enterprise resource planning) system, an enormous investment considering the company's business scale. With the rapid progress towards a smart society, enterprises, government buildings, shopping malls, schools, airports, and hospitals in China alike all need complete IT solutions.