April 19, 2013
The industry is abuzz with speculation that IBM will sell its x86 server business to Lenovo. As usual, neither party is talking publicly, but at this point I’d give it a better than even chance, since usually these kind of rumors tend to be based on leaks of real discussions as opposed to being completely delusional fantasies. Usually.
So the obvious question then becomes “Huh?”, or, slightly more eloquently stated, “Why would they do something like that?”. Aside from the possibility that this might all be fantasy, two explanations come to mind:
1. IBM is crazy.
2. IBM is not crazy.
Of the two explanations, I’ll have to lean toward the latter, although we might be dealing with a bit of the “Hey, I’m the new CEO and I’m going to do something really dramatic today” syndrome. IBM sold its PC business to Lenovo to the tune of popular disbelief and dire predictions, and it's doing very well today because it transferred its investments and focus to higher margin business, like servers and services. Lenovo makes low-end servers today that it bootstrapped with IBM licensed technology, and IBM is finding it very hard to compete with Lenovo and other low-cost providers. Maybe the margins on its commodity server business have sunk below some critical internal benchmark for return on investment, and it believes that it can get a better return on its money elsewhere.
My working hypothesis is that if IBM sells, it will be its conventional rack and tower server business. It will probably reserve its new Flex Systems line (I'm lumping together the PureFlex, PureAplication etc systems that were announced in 2012), iDatPlex and their HPC business and any fabric/connectivity IP it has. The rumor mill says that IBM could get somewhere north of $5 billion for its x86 server business, Lenovo would get its server IP and goodwill to sell into IBM's world-wide server base, and it could become the first Chinese company to crack the sales code in North America. In addition, Lenovo gets a powerful lever to use in its competition with Huawei, which has not, despite its successful networking business and excellent server and storage technology, made any significant headway in North America and Europe in the general systems business.
What will IBM do with the money? Good question, but services and software sound like good bets. IBM has been successfully growing these two lines of business for several decades, and further investments here sound like good ideas, especially around mobile and cloud integration.