Lenovo in talks to buy IBM server business

Lenovo Group Ltd, the world's second largest personal computer (PC) producer by market share, said Friday that it was in preliminary negotiations for a potential takeover, following a media report saying the Chinese firm was planning to acquire a low-end server business from US technology firm International Business Machines Corporation (IBM).

The company has yet to reach an agreement about the takeover and will announce any major steps forward in the deal, Lenovo said in a statement filed to the Hong Kong Stock Exchange Friday, without revealing the takeover target.

The company also warned shareholders and potential investors that the takeover will not necessarily be completed.

Lenovo's share price surged 9.46 percent Friday to close at HK$7.06 ($91 cents) following the news.

IBM is seeking up to $6 billion for its low-priced x86 server business, which is widely used for support data centers, technology news website crn.com reported Thursday, citing an anonymous industry executive.

BlueFocus PR Consulting, which handles public relations for Lenovo, refused to comment more on the takeover rumor when reached by the Global Times Sunday.

However, BlueFocus said that since the PC business is expected to bring limited growth for Lenovo, the company has created a "PC-plus" strategy, shifting its focus to the consumer market with mobile phones and tablets as well as to the enterprise-level market with servers and storage products.

In the server business, Levono formed a joint venture with US storage provider EMC Corp last August to develop servers and networked storage equipment, which boosted Lenovo's technological capabilities.

Lenovo already has advantages in brand and marketing channels in the sector, and if the deal goes through, the company's server business will be further strengthened, Cao Yujie, consultant director of Beijing-based IT market research and consulting firm CCW Research, told the Global Times Sunday.

IBM's x86 server business plays an important role in the enterprise-level market with a good profit margin, Cao said, but he noted that mobile devices have higher added value for Lenovo.

Lenovo has successfully acquired IBM's PC unit and has seen good business integration, so it will be much easier for Lenovo to take over new businesses such as the IBM x86 server business, Cao said. Lenovo spent $1.25 billion to buy IBM's PC division in 2005.

IBM topped the world's server market by revenue with a 36.5 percent share in the fourth quarter of 2012, followed by HP's 24.8 percent and Dell's 15.1 percent, according to industry consultancy IDC.

Lenovo was not among the top 5 server firms during the same period, and Gao Wenping, general manager of Lenovo's server division, said the company held a 3 percent share of the world server market in June, noting that Lenovo does not rule out acquisitions of server producers to increase its market share, which could make it one of the world's top 3 server manufacturers by 2015.