"I think this is a good deal all around," Linley Gwennap, founder and principal analyst at the Linley Group, told us. "The [x86] server business really aligns more with Lenovo’s business model. For IBM, this allows them to focus more on the higher value server products that use their Power processors, rather than these lower cost commodity servers."
The x86 server market is becoming commoditized. "It's been difficult to make much of a profit in that market." Intel has "huge profit on the processors, but that doesn't leave much room for the server makers to make much profit themselves." he said. "When you look at what Dell or HP or IBM is offering, they are selling pretty much the same thing. That kind of commoditization tends to reduce the profits considerably."
Sameh Boujelbene, a senior analyst at the Dell Oro Group, told us, "I'm not really so happy for this acquisition, because it will only put further pressure on margins and ASPs." That said, she characterized the deal as a win/win, because it lets IBM focus on higher-margin businesses such as its new Watson analytics group. Lenovo should see benefits "at least for the next couple years… Lenovo is powerful in China and the growth in the server market is in China."
Taking issue with Gwennap, Rich Wawrzyniak, an analyst with Semico Research Corp., told us the server business is a good one -- for companies such as Lenovo. "The growth rates just aren't matching up with what IBM is looking for. Is it a good idea? That remains to be seen." Servers are not yet a commodity. "There's a lot of maintenance required, [and] you have to be up on software, and you have to have the infrastructure to maintain the thing."
Another analyst (who requested anonymity because of investments in IBM) said the deal "may have more to do with the issues IBM is having, rather than whether the server business is a good or a bad business." It was motivated by IBM's "terrible" earnings. "They need investment gains from selling the business."
Access to IBM technology gives Lenovo "instant credibility in the enterprise market," putting more pressure on HP and Dell to lower costs, the analyst said. In addition, Lenovo may find it easier to sell its x86 servers to Chinese customers, who would want to buy from local vendors.
The transaction is subject to certain conditions, including approval by the Committee on Foreign Investment in the United States.
IBM said in the release that Lenovo would "assume related customer service and maintenance operations." IBM would "continue to provide maintenance delivery on Lenovo’s behalf for an extended period of time."
— Zewde Yeraswork, Associate Editor, EE Times