*from www.bloomberg.com, April 19, 2013 (To view original article click here.)
Take Away #1: Lenovo Group Ltd., the Chinese computer maker, is the most likely bidder for parts of IBM’s server division, a person familiar with the matter said.
Key Facts and Figures:
- IBM’s server business sells servers running x86 processors.
- The business may fetch $2.5 billion to $4.5 billion depending on what assets and liabilities are included, said the person.
- An agreement may still be several weeks away, the person said.
Take Away #2: Lenovo, which used the 2005 purchase of IBM’s PC unit as a stepping stone to become the world’s second-largest producer, is now diversifying into other products.
Key Facts and Figures:
- Lenovo is now the second biggest PC maker behind Hewlett-Packard Co.
- Lenovo is diversifying into other products such as tablets and smartphones.
- Lenovo also allied itself with EMC Corp. (EMC) last year to boost sales of storage equipment and servers that run corporate networks.
- Buying IBM’s business would further bolster its capabilities, said Alberto Moel, an analyst with Sanford C. Bernstein & Co.
- “Low-cost servers are the fastest-growing, most attractive area of the server business right now, so this would make sense,” said Moel.
- “This is consistent with Lenovo’s strategy of moving into things that are growing and going to new places,” says Moel.
Take Away #3: Cloud computing is increasingly popular, spurring demand for low-cost, energy-efficient servers among companies with large data centers.
Key Facts and Figures:
- Companies with large data centers, including Amazon.com, Google Inc. and Facebook Inc. are contributing to this demand.
Take Away #4: IBM’s low-end server business could be a “good fit” at Lenovo, said Laurence Balter, an analyst at Oracle Investment Research.
Key Facts and Figures:
- The machines, which store corporate data and run computing functions, rely on x86 chips – similar to the processors used in PCs.
- The business may be underperforming currently because of the cost of business on IBM’s side.
- Lenovo likely believes it can make more because IBM’s cost of doing business is so much higher.
Take Away #5: Lenovo said it was in “preliminary” discussions about a potential acquisition with a third party, which it didn’t name, in response to previously reported talks.
Key Facts and Figures:
- The talks were previously reported in CRN, a publication aimed at technology integrators.
- “No material terms concerning the potential acquisition have been agreed and the company hasn’t entered into any definitive agreement,” Lenovo said.
- IBM CFO Mark Loughridge said on his earnings call that he wouldn’t comment on rumors.
Take Away #6: Profit at IBM’s low-end service business has been “underperforming” compared with other parts of its hardware unit.
Key Facts and Figures:
- Revenue for the System X business, which sells x86 servers, declined 9% in the first quarter, IBM said.
- Even so, the company’s total hardware revenue fell more sharply, dropping17% to $3.1 billion.
- IBM said it would take “substantial actions” to improve the business.
- A combination of divestitures, job cuts and acquisitions will result in charges in the second quarter and gains in the second half, Loughridge said.
- “The low-end server division was a drag, subtracting economic value from Big Blue,” Balter said. “It is a painful but smart move in the long run.”
Take Away #7: Lenovo shares rose today, while IBM declined.
Key Facts and Figures:
- Lenovo rose to HK$7.06 in Hong Kong trading, the largest gain since Sept. 27, 2011.
- The shares are up less than 1% this year, compared with the 28% decline in the benchmark Hang Seng Index.
- IBM dropped 6.7% to $193.23 at 10:21 a.m. in New York.
*To view original article from www.bloomberg.com click here.