Business, Cloud Computing, Enterprise, Hardware

IBM to Sell x86 Server Business to Lenovo for $2.3 billion

IBM has today announced that they will be selling their x86 server businesses to Lenovo to the tune of $2.3 billion. This transaction follows IBM’s sale of their PC (consumer and business) division to Lenovo back in 2004. Since then, Lenovo has done nothing but grow and in the last 10 years has become one of the premier OEMs in the world for PCs. There is no denying that Lenovo has been on a tear as of late, and this deal simply confirms their momentum in being able to acquire this division from IBM for $2.0 billion in cash. This deal also marks an important milestone for IBM, as they are no longer in the business of making machines using x86 processors for either consumers or servers.

This move makes a lot of sense when you realize that IBM recently announced the creation of the OpenPower consortium, which utilizes IBM’s Power architecture in order to create a larger ecosystem around IBM’s technology. As of right now, the only two members in the Open Power consortium are Nvidia and Google, which are two fairly powerful partners to have. I suspect that IBM’s reasoning for selling this division is a combination of them wanting to continue to get out of the hardware business and to continue to focus more heavily on services. IBM strongly believes that they can continue to grow and improve their profitability by providing Big Data analytics and cloud services to their largest customers.

Furthermore, I think a big part of IBM getting out of the server business has to do with the fact that most companies deploying their own cloud infrastructure (Google, Facebook, Amazon, Apple, etc.) are moving towards their own custom hardware and aren’t necessarily buying whole servers anymore. Those companies, in the past would have been some of IBMs biggest potential customers and with them all moving away from buying whole systems and building their own, it makes sense to get out of that business. With things like the OpenCompute project, these companies are moving away from the traditional server architectures and working together to build systems and architectures that meet their specific needs while still getting volume discounts and efficiencies.

I believe that IBM wants to create something similar with the OpenPower consortium and to proliferate their IP (not necessarily physical chips) to a degree where they can continue to collect revenue on IP that they don’t have many costs associated with. This move is a continuation of IBM trying to cut down to the bottom line with a razor sharp knife, they have little interest in doing anything outside of services, which is kind of sad because it sounds like IBM will soon fail to live up to its own name and essentially become a huge services company (which they pretty much already are). After all, IBM is supposed to stand for International Business Machines, so where are the machines?