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Lenovo says $2.1 billion IBM x86 server deal to close on Wednesday

29/09/2014 by


Lenovo Group Ltd. will close its acquisition of International Business Machines Corp's (IBM) (IBM.N) x86 server division on Oct 1 for $2.1 billion, giving the Chinese tech firm the firepower to win business clients from U.S. rivals.

The closing purchase price is lower than the $2.3 billion announced in January because of a change in the valuation of inventory and deferred revenue liability, Lenovo said. Roughly $1.8 billion will be paid in cash and the remainder in stock.

The purchase is Lenovo's latest since overtaking Hewlett-Packard Co (HP) (HPQ.N) as the world's top personal computer (PC) maker last year, in its quest to diversify away from a steadily shrinking PC market. Earlier this year, Lenovo also said it would pay $2.9 billion for Google Inc's (GOOG.O) Motorola smartphone unit.

In an interview, Lenovo Chief Executive Yang Yuanqing said the IBM deal opened a new "growth engine" for his company. He said he expected the x86 unit to bring in $5 billion in its first year and deliver margins higher than the 4 percent of Lenovo's PC business.

"In the large and medium enterprise space we can now fully leverage IBM technology to compete with brands like HP and Dell," Yang said by telephone. "We can combine this good technology with Lenovo's efficient operations."

IBM's x86 server business has trailed those of HP and Dell Inc [DI.UL] in market share. But Yang said Lenovo has expertise competing in markets with razor-thin margins, gained during its journey to becoming the world's largest PC maker.

Lenovo currently sells a line of low-end servers under the ThinkServer brand, but the company pursued IBM's x86 portfolio because its higher-end machines can perform more complex analytics and database-related functions.

The x86 server team will continue to be led by former IBM executive Adalio Sanchez, who will report to Gerry Smith, president of Lenovo's enterprise business group, Lenovo said in a statement announcing the deal's impending closure.

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