IBM (NYSE: IBM) is exploring for a second time in recent months the sale of its server unit. But which company might be buying it is a different firm, based on the media reports.
Bloomberg news reported early Monday that Lenovo is in talks with IBM and a deal could be announced in the new future.
The Wall Street Journal reported earlier tha the suitor is Dbelieved to be Dell (Nasdaq: DELL).
Bloomberg described the Lenovo-IBM talks as “serious discussions,” citing ”a person with direct knowledge of the matter.”
Lenovo has completed due diligence, according to the person, who asked not to be identified because discussions are private. The companies failed to agree last year on a price for the assets, estimated to be worth $2.5 billion to $4.5 billion. The person didn’t have details on the current price or structure of the proposed deal, Bloomberg reported.
Media and insider reports last year indicated that Lenovo came very close to buying the same IBM server group. Lenovo, which both IBM’s PC business in 2005 and turned that deal into part of a plan that made it the world’s No. 1 PC seller, has been expanding its own server business quite aggressively over the past two years. It is partnered with EMC, which has a major presence in the Triangle area, in selling jointly branded and developed servers.
Lenovo operates one of its two global headquarters in Morrisville.
Big Blue has been selling off hardware businesses as it focuses more on software and services. In addition to selling the PC group to Lenovo, it sold the point of sale business to Toshiba. The POC business was largely based in the Triangle, as was the PC group.
IBM does maintain a high-profile “super lab” in RTP focused on server development.
The news comes just hours before IBM announces its latest earnings report on Tuesday after the markets close. Declining hardware sales have hurt IBM revenues and have triggered numerous changes within the server business.
Last week, IBM announced plans to invest $1.2 billion in its data center business. Servers form the core of data centers.
Two weeks ago, IBM announced plans to invest $1 billion in beefing up its “Watson” supercomputer efforts.
Chief Executive Officer Yang Yuanqing has said he’s looking for acquisitions as the company tries to counter falling global PC shipments by expanding into storage equipment and the servers that run corporate networks. Yang wants to double Lenovo’s share of that market within three years to complement the company’s development into the No. 2 smartphone vendor in China behind Samsung Electronics Co.
Brion Tingler, a New York-based spokesman for Lenovo, declined to comment.
Anthony Guerrieri, a Shanghai-based spokesman for IBM, said the company “does not comment on rumors or speculation.”
Lenovo is only in talks to acquire the x86 server hardware business and not services, and a deal could be signed within a week if terms are agreed, the source told Bloomberg.
A year ago, Lenovo wanted to pay toward the low end of the $2.5 billion-to-$4.5 billion range that was being discussed for the assets, while IBM had sought a higher valuation, Bloomberg reported at the time.
Lenovo had net cash reserves of $2.6 billion as of Sept. 30, the company reported in November.
“Lenovo has been trying to break into servers for a while as a new growth engine,” Alberto Moel, an analyst at Sanford C. Bernstein & Co. in Hong Kong, told Bloomberg. “The logic was there and that hasn’t changed in the last eight months. This transaction would make sense for both parties, and it could be good for Lenovo based on the right price.”
In October, IBM reported sales fell for the sixth straight quarter on slowing demand for computer hardware. The company lost $713 million in its hardware business in the first nine months of last year, compared with $253 million in profit in the year-earlier period. That may have added pressure for IBM to sell the server unit, said Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial.
“Last quarter IBM server sales were very weak,” Yang said. “IBM may be looking to cut losses before the erosion gets worse.”
Shares of Armonk, New York-based IBM have advanced 1.3 percent this year after dropping 2.1 percent in 2013. The U.S. markets are closed today for a holiday. Lenovo, which has its headquarters in Beijing and Morrisville, North Carolina, rose 1.4 percent to close at HK$10.18 in Hong Kong trading.
The reported discussions focus on what The Journal calls IBM’s “low-end server business,” which focuses on X86 technology. The newspaper cited unnamed “people familiar with the matter.”
However, the reporters hedged their bets on just how serious Dell might be, noting “it is unclear how seriously” the No. 3 server manufacturer behind IBM and HP (NYSE: HPQ) really is.
IBM employs some 9,500 people across North Carolina.
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(Bloombeg news contributed to this report.)