IBM (NYSE: IBM) says it is making a $1.5 billion profit in the sale of its x86 server business to Lenovo.
The disclosure came in IBM’s annual report filed with the SEC on Tuesday.
The information about the Lenovo sale, which included the transfer of some 2,000 IBM server business workers to Lenovo last fall, is buried deep in the report.
IBM’s “net gain” would have been even higher if the purchase price had not been adjusted down to $2.1 billion from $2.4 billion just prior to closing.
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IBM notes that it received $1.8 billion in cash and some $300,000 in Lenovo shares. Big Blue also became a shareholder in Lenovo when Lenovo acquired its Raleigh-based PC business a decade ago. IBM later sold those shares.
“The transaction will be completed in phases. The initial closing occurred on October 1, 2014. A subsequent closing occurred in most other countries in which there was a large business footprint on December 31, 2014. The remaining countries are expected to close in early 2015,” IBM reported.
“The company expects to recognize a total pre-tax gain on the sale of approximately $1.5 billion, which does not include associated costs related to transition and performance-based costs. Net of these charges, the pre-tax gain is approximately $1.2 billion, of which $1.1 billion was recorded in the fourth quarter of 2014. The balance of the gain is expected to be recognized in 2019 upon conclusion of the maintenance delivery agreement.”
The x86 sale was part of IBM Chair and CEO Ginni Rometty’s strategy to move IBM away from hardware and to focus more attention on software as well as “cloud computing” and its “Watson” supercomputer efforts.
Included in the sale were “System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations,” IBM noted.
Lenovo expanded its Triangle operations to accommodate the IBM transfers by leasing two additional buildings close to its global executive headquarters in Morrisville.
IBM and Lenovo also continue to work together in selling and in providing services.
“IBM and Lenovo have entered into a strategic relationship which will include a global OEM and reseller agreement for sales of IBM’s industry-leading entry and midrange Storwize disk storage systems, tape storage systems, General Parallel File System software, SmartCloud Entry offering, and elements of IBM’s system software, including Systems Director and Platform Computing solutions. Effective with the initial closing of the transaction, Lenovo has assumed related customer service and maintenance operations. IBM will continue to provide maintenance delivery and warranty services on Lenovo’s behalf for an extended period of time. In addition, as part of the transaction agreement, the company will provide Lenovo with certain transition services, including IT and supply chain services. The initial term for these transition services ranges from less than one year to three years. Lenovo can renew certain services for an additional year.”