Lenovo India to benefit from IBM's 'high margin' server biz

While IBM is one of the top 3 players in the server space in India, Lenovo does not have any presence in the segment

Lenovo’s move to acquire IBM’s low-end server business will help the Chinese computer giant's India operations as server business has higher margins than personal computers (PC) business. While IBM is one of the top-three players in the server space in India, Lenovo does not currently have any presence in the segment in India.

“This deal has several financial and commercial benefits, which our Indian business will also derive,” Lenovo India Managing Director Amar Babu told Business Standard. “Enterprise has been an area of investment for Lenovo, and whatever benefits the deal get us globally, will reflect for us in India also. Globally, we will become the No. 3 player in the server space, as against No 6 now.”

On Thursday, Lenovo announced it would buy IBM's server business for $2.3 billion (Rs 14,230 core). The deal includes System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, networking and maintenance operations. Under the arrangement, IBM would receive $2.07 billion (Rs 12,800 crore) in cash and the balance in Lenovo stocks.

The deal is likely to help Lenovo diversify its PC business globally. In 2005, Lenovo had acquired IBM’s PC business, which included the ThinkPad line of PCs. “In the period since, the companies have continued to collaborate in many areas,” Lenovo said in a release.

“IBM will continue to develop and evolve its Windows and Linux software portfolio for the x86 platform,” the release said. “Lenovo and IBM plan to enter into a strategic relationship, which will include a global original equipment manufacturer (OEM) and reseller agreement for sales of IBM’s industry-leading entry and mid-range Storwize disk storage systems, tape storage systems, general parallel file system software, SmartCloud entry offering, and elements of IBM’s system software portfolio, including systems director and platform computing solutions.”

As part of the agreement, Lenovo will offer employment to 7,500 IBM employees around the world, including those based in major locations such as Raleigh, Shanghai, Shenzhen and Taipei, the release added.

“We have worked extremely well with the IBM team after the acquisition of PC business, and that should continue,” Babu said, refusing to divulge any further information specific to India operations in the wake of the acquisition.

An IBM India spokesperson had not responded to Business Standard’s questionnaire till the time of going to press.