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IBM Dumps Its Server Business On Lenovo For $2.3B

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IBM has finally managed to sell its low-margin server business to the world’s largest PC maker Lenovo. The two companies have been negotiating this deal for past few years, and a potential sale fell off last year when Lenovo did not agree to pay what IBM wanted — $6 billion.

Now, Lenovo has informed the Hong Kong Stock exchange that it will pay $2.07 billion in cash to IBM for buying its server unit.

This is the second time IBM has managed to get rid of a low-end hardware business by selling it off to Lenovo. In 2005, IBM sold its ThinkPad PC business to Lenovo for $1.75 billion.

IBM’s revenue from server business have been declining for past seven quarters, forcing the company to act fast and get rid of the unit.

Globally, some of the biggest enterprises including Facebook and Google are increasingly turning to stripped-down versions of hardware, and not the pricey ones. These companies are instead asking manufacturers like Quanta to build customized servers for them that work cheaper and more suited. With almost no brand association, servers from Chinese and Taiwanese manufacturers are called the “other” server.

For Lenovo, which is already struggling to cope with worsening PC sales because of higher smartphone adoption in the growing markets of Asia, IBM’s server business will give an opportunity to build another revenue stream.

As this Reuters article says, IBM’s server business was the world’s second-largest, with a 22.9 percent share of the $12.3 billion market in the third quarter of 2013, according to technology research firm Gartner