Lenovo is about to expand its portfolio. The Committee on Foreign Investment in the United States (CFIUS) has approved a deal that allows IBM (News - Alert) to sell its X86 server business and the licensing of key storage technologies and software to the Lenovo Group. Those interested in application deployment will likely see a change in the available offerings once the deal is complete.
The deal, estimated at $2.3 billion, will enable IBM to focus its resources on software and system innovations to bring new value to IBM clients in areas such as the cloud, Big Data and cognitive computing. It is also expected to provide clarity and confidence for current IBM X86 customers that they will have the desired support in Lenovo (News - Alert) going forward. With CFIUS approval, the deal must also receive blessing from regulators in China, the European Commission and Canada. Europe and China have already approved the deal.
IBM, according to a report in Enterprise Tech has long been on a path to shed off its low-margin business lines and allow for more focus on products that support higher profit margins. In doing so, Big Blue has gotten out of the memory chip, printer, disk drive, networking, PC and point-of-sale businesses over the last 10 years. Resources will now be funneled completely to software and services in order to drive the desired higher profits per unit of revenue.
Getting to this point to shift its focus has been an uphill battle for IBM. The company reportedly wanted between $5 billion and $6 billion for the business. Given their product cycles, it is expected that mainframes and Power Systems will decline in revenue. Rumors suggest that the sale and actual deal are hurting IBM’s revenue share right now, shifting some of their previously owned share to Dell, Hewlett-Packard (News - Alert) and Cisco Systems. These companies will have to prepare for the tough competition expected out of Lenovo which has the capacity to flex its muscle when it comes to supply chain and manufacturing expertise.
As changes in the application deployment space are nothing new, Lenovo is gearing up to almost reinvent itself as a powerhouse in the market. In addition to the IBM deal, the company is also acquiring the Motorola Mobility smartphone business from Google (News - Alert). In a shared statement, the company claimed it is on track to close both deals by the end of the year, although not all details are immediately available.
The point is the markets are changing as technology continues to evolve. We should expect to see a lot from Lenovo in the coming years as it expands to embrace opportunities with these latest acquisitions. Likewise, application deployment will shift as the market outlook is expected to change.