On the same day that IBM posted one of its worst quarters in eight years— at least according to this analyst— word leaked that it might be trying to sell its x86 server business to China's Lenovo Group.
The news first broke yesterday by Kevin McLaughlin at CRN and today CRN's Joseph Kovar vaguely confirmed that Lenovo was in "preliminary talks," with somebody, though Lenovo wouldn't say it was IBM.
Yesterday, IBM's quarter missed expectations on both profit and revenue, and CFO Mark Loughridge heavily blamed its server business during a conference call with analysts and said a big change was coming to it:
"There are parts of our business that are in transition or have been underperforming, like elements of our Power, System x and storage product lines that showed disappointing performance in the first quarter. Here we are going to take substantial actions.
IBM has multiple server businesses including its PowerSystems family, which use IBM's own Power CPUs. These compete with Oracle's new T5 server announced this month. There's also the PureSystems family, which are "tuned" for specific uses, IBM says.
If a deal does go down, it would likely be for IBM's System x line of Intel- and AMD-based servers and IBM could get $5 billion to $6 billion for the sale, McLaughlin's sources say.
IBM would be following in Oracle's footsteps, too, getting out of low-margin commodity servers to focus on pricier, high-margin "engineered systems" as Oracle CEO Larry Ellison calls them.
That's not a bad idea.
Lenovo bought IBM's PC business in 2004 and would be a good candidate to buy the server business because Lenovo doesn't compete with IBM's other lines of business.
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