IBM Exits x86 Market to Focus on Higher-Margin Software and Services

Archived Published: 29 January 2014 ID: G00262158

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IBM's intent to sell its x86 server business demonstrates a desire to focus on alternate hardware, software and services. Yet the deal leaves clients and buyers with questions regarding service, product support and direction.

News Analysis


On 23 January 2014, IBM announced that Lenovo will acquire IBM's x86 server business, including the recently introduced X6 high-end server line, BladeCenter and Flex System blades and switches. Lenovo also will acquire IBM's x86-based Flex integrated infrastructure, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance. IBM will retain System z mainframes, Power Systems, Storage systems, Power-based Flex servers, and PureApplication and PureData appliances. Both companies announced a global OEM deal for IBM products, including Storwize disk storage systems. The purchase, subject to regulatory approvals, is for $2.3 billion, of which $2 billion will be paid in cash and the rest in Lenovo stock. Some 7,500 IBM employees will transfer to Lenovo.


Gartner sees this sale as a watershed event, as it underscores IBM's focus on its higher-margin business: specifically, selling software and services. In 4Q13, IBM's hardware group represented 16% of IBM's revenue. Hardware revenue, which did not include storage, declined year to year since 2Q12 at a double-digit rate. This prospective deal follows the 2005 IBM sale of its PC business to Lenovo.

While Lenovo looks to repeat previous successes enjoyed with the PC divestiture, management will find that harder to replicate with x86 servers, as the PC business does not compare in configuration and support complexity. To succeed, Lenovo must invest heavily in product development, marketing support and channel relationships. This acquisition allows Lenovo to leverage IBM innovations, such as Flex System, NeXtScale and the new x86 high-end systems, as well as to leverage the developers of these systems.

IBM claims the divestiture will allow it to focus on system and software innovations, such as cognitive computing and big data. But most cloud and big data infrastructures are now built on x86 platforms. That leaves IBM's cloud and big data business to flow predominantly from its mainframe or RISC product lines or to position Lenovo as a supplier of x86 infrastructures.

Regulatory approvals could take months. Meanwhile, Gartner advises caution, because:

  • Lenovo will become the supply chain for all IBM x86 technologies, but does not yet have a proven global support structure for servers.

  • Lenovo lacks experience in enterprise computing, although it will gain some of that through this acquisition and appropriate long-term guidance from IBM.

  • Lenovo will need to establish credibility in strategic and business-critical products for the data center.

  • IBM executive and engineer relocations or attrition may cause early instability and disruptions.


Customers and prospects:

  • Request that IBM detail its plan for ongoing support, process and contracts for technology to be acquired by Lenovo.

  • Review IBM x86 buying decisions that are not tied to IBM software or service engagements.

  • Demand that IBM disclose future product road maps for technology to be retained by IBM.

  • Validate the commitment of essential channel partners and independent software vendors to the planned acquisition by Lenovo.

  • Determine whether your organization has other higher-level procurement issues from companies based in China.

  • Avoid long-term agreements (three to five years) built around x86 hardware offerings until the sale is finalized.

  • Validate interdependencies that may arise between IBM retained systems and those acquired by Lenovo.

  • Secure a clear understanding from both companies as to whether technology you buy will remain with IBM or move to Lenovo.

  • Monitor the account and product transition plans that IBM and Lenovo put in place to streamline the transfer of technologies and people.

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