"IBM has not made very good margins on its low end servers for several years," wrote Jack Gold, of the analyst firm J.Gold Associates, in an email. IBM has too much overhead and not enough volume to compete with Dell and Hewlett-Packard, the two largest x86 server vendors.
Lenovo has honed its computer manufacturing efficiencies and so could potentially squeeze more profit from server sales than IBM has not been able to do, he said.
Lenovo "has really demonstrated their ability to scale out to the world in a high-volume business," said Tom Rosamilia, IBM senior vice president of the company's systems and technology group, in a press conference about the sale.
Many of Lenovo's enterprise customers have been asking about the possibility of Lenovo supplying servers as well, said Peter Hortensius, Lenovo senior vice president, also at the press conference.
The company does have a line of x86 servers already, but the IBM purchase will accelerate the company's plans to become a powerhouse in the industry. When the acquisition closes, Lenovo will move from being the sixth largest server vendor to the third largest, with 14 percent of market share, Hortensius said. It will enlarge Lenovo's business by a "factor of 10," he said.
"For us, it was a fast way to do something we were already planning to do. It gives us total end-to-end capabilities in development, sales, and ... a very strong supply chain that would, frankly, would take us five years to build up something similar," Hortensius said.
The deal is also good for IBM in that "it allows us to focus our investments on high value segments for enterprise clients," Rosamilia said. IBM will also get increased exposure through Lenovo to the growing Chinese market for system sales.
As part of the deal, IBM will provide Lenovo with the rights to resell, at the OEM or retail level, IBM entry and mid level Storwiz storage systems, as well as IBM's GPFS (General Purpose File System) and related software, allowing Lenovo to create bundled packages around the x86 servers. IBM will also purchase Lenovo x86 servers for its own system sales.
IBM will continue to provide maintenance on behalf of Lenovo for the x86 servers, for the foreseeable future. "Customers will see very little if any change in terms of their maintenance and support delivery," said Adalio Sanchez, the IBM general manager for System x systems, during he press conference.
The deal is expected to close within six to nine months, pending regulatory approval.