Lenovo, the worlds biggest personal computer manufacturer, will close its acquisition of IBMs x86 server division on Wednesday for $2.1 billion, $200 million less than the initial announcement in January.
After overtaking Hewlett-Packard as top PC maker last year, Lenovo now seeks a new “growth engine” beyond the highly competitive PC market, challenging HP and Dell for a share in the $50 billion server segment. Lenovos Chief Executive Officer Mr. Yang Yuanqing said that he expects the unit, combined with Lenovos own server business, to bring in a combined revenue of $5 billion in the first year of the acquisition, presenting a significant growth on top of the companys revenue of $38.7 billion in 2013.
IBMs server unit has lost market share to its competitors as the announcement of Lenovos acquisition plans in January fueled concerns among customers about the transition. Nevertheless, Mr. Yang remains determined to win back the lost positions as the deals closure would ease those concerns and allow the Chinese company to challenge its main rivals in the face of HP and Dell.
“After we stabilize the business, we will challenge the top two,” Yang said. “We want to win more market share from competitors.”
The deal was initially estimated at $2.3 billion at the time of its announcement in January, but was revalued to $2.1 billion to reflect lower-than-expected inventories and deferred revenue liability. Lenovo will pay $1.8 billion in cash and will allot and issue 182 0000 000 consideration shares to IBM.
The x86 server team will continue to work under the leadership of former IBM executive Adalio Sanchez who will report to Lenovos Executive Vice President Gerry Smith, who oversees the Chinese PC makers business for corporate clients. Mr. Smith said it is too early to discuss whether the divisions headcount will be trimmed.
Mr. Yang said that IBM has very good technology and engineers, but the industry was changing. He said Lenovo will work on making the business more efficient as IBMs current cost structure was not competitive enough, but did not reveal any specific restructuring plans.
Both Mr. Yang and Mr. Smith said Lenovos long-term goal is to become the leader in the server segment, having already topped the PC market in 2013, eight years after the Chinese company acquired IBMs personal computer business for $1.25 billion.
“In the large and medium enterprise space we can now fully leverage IBM technology to compete with brands like HP and Dell,” Mr. Yang said, cited by Reuters. “We can combine this good technology with Lenovos efficient operations.”
The deals completion is in line with a timetable set by Lenovo, easing concerns of a delayed approval by US regulators during times of uptight relations between the US and China in the field of cyber-security. The purchase was anticipated to be scrutinized partly because US agencies, including the Department of Homeland Security and the Defense Department, use IBM servers, and amid cyber-security tensions that were sparked in May after US prosecutors accused five Chinese military officials of stealing classified information from US companies.
Lenovo Group Ltd fell by 0.84% on Monday to close the session in Hong Kong at HKD11.74 per share, marking a one-year change of +41.79% and valuing the company at HKD122.21 billion. IBM was down 0.05% by 11:57 GMT to trade at €148.977 in Frankfurt.
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