IBM Gets The U.S. Nod To Sell System x Biz To Lenovo

August 25, 2014 Timothy Prickett Morgan

The deal is almost done, and IBM has nearly rid itself of an X86 market that it helped foster, sometimes unwillingly, and yet never could figure out how to dominate. Perhaps that was a good thing for computing as a whole, but it may not be a very good thing for International Business Machines, as we knew it, over the long haul.

I am talking about IBM’s $2.3 billion deal to sell off its entire System x business, including all of its X86 based systems and 7,500 employees who design, make, market, and sell its machines, to Chinese computing giant Lenovo Group. The deal was announced at the end of January this year, and has apparently been held up by regulators in the United States as they review the security implications of having a dominant supplier of systems controlled by a company located in a foreign nation. (I guess we know what the rest of the world feels like now, here in America.)

The fact of the matter, and what Adalio Sanchez, the general manager of the System x division who will move over to Lenovo when the deal gets finalized, told me when the sale was announced is that most of the world’s systems are made in China already, so the point is moot. The issue the U.S. government was apparently concerned about was giving access to a foreign support organization that would have access to the BIOS and other aspects of systems. IBM has said that it would be performing the support operations for at least five years, and that seems to have settled things down a bit and the Committee on Foreign Investment in the United States (CFIUS) gave it approval for the deal to go ahead. The regulators in China and the European Commission have already given their consent to the deal.

“The clearance by CFIUS of this transaction is good news for both IBM and Lenovo, and for our customers and employees,” IBM said in a statement. “The parties now look forward to closing the transaction. The approval of the $2.3 billion sale to Lenovo enables IBM to focus on system and software innovations that bring new kinds of value to IBM clients in areas such as cognitive computing, Big Data and cloud, and provides clarity and confidence to current X86 customers that they will have a strong partner going forward.”

Once the deal is done, which is expected to happen by the end of the year, we will see just how much IBM really does believe in Power Systems and System z mainframes. Perhaps enough to invest the money it was losing on the X86 server business on promoting the machines that it makes, particularly those running IBM i. But I fully expect for IBM to focus on the Power-Linux dynamic duo, and as I have said before, we have to hope that IBM succeeds in pushing Power and expanding its reach because it is this that will ensure a longer life for IBM i platforms running on the same Power iron. IBM will support the business it has, but it wants to expand with Linux. That is just the way it is.

The next move is to sell off the chip foundries in Vermont and New York and then to outsource the manufacturing of future Power chips and whole systems to third parties. Mark my words, IBM will find some way to unload the foundries. It has to, since they are so capital intensive. If IBM can’t afford to be in the X86 server business, it can’t afford to be in the chip making business for sure. Maybe IBM should have sold the foundries to Intel and bought Supermicro instead?