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Lenovo Agrees to Buy IBM Server Business for $2.3 Billion
- gtirloni 13y agoHaving worked at IBM I know they will do anything to make the quarter numbers look good. This $2.3bn will help for some time but I wonder what they will sell next.
- porlw 13y agoNote, only their low-end x86 business, not the POWER servers.
- cones688 13y agoOr even more profitable MainFrame (Z Series) which is still growing
- afhsfsfdsss88 13y ago..which is terrific hardware to be sure. But you have to be in Al-Qaeda to be able to afford it.
- Shivetya 13y agoZ for mainframe, I for iSeries (think AS/400 - but now these machines are huge), and P for AIX. the installed number of those three is immense and in many organizations most people would never suspect.
- anatoly 13y agoLike what organizations for example?
- hga 13y agoLook at, for example, Jack Henry & Associates http://en.wikipedia.org/wiki/Jack_Henry_%26_Associates http://en.wikipedia.org/wiki/Jack_Henry_%26_Associates Their core banking stuff, which powers the $600 million capitalization local bank I use, is System i (AS/400) based as I understand it.
- anatoly 13y agoRight, that's not actually surprising to me, I know banks still use mainframes, and I thought it was well-known. Same about airlines, and heavy-duty control systems (say, sewage control for a large city or something) that are likely to be legacy. I was wondering what could be organizations I wouldn't even suspect.
- zmonkeyz 13y agoI believe O'Reilly auto parts has an AS/400 at each of it's stores.
- bkmartin 13y agoLike huge swaths of the insurance, banking and healthcare industries. (Current iSeries shop here - we are a ticket printing company) Construction is also a huge shop. In fact, iSeries is SAP's preferred platform, but the SAP Windows install consultants won't tell you that because they make way more money consulting on Windows.
- scholia 13y agoFrom IBM's latest financial results: http://www-03.ibm.com/press/us/en/pressrelease/43008.wss http://www-03.ibm.com/press/us/en/pressrelease/43008.wss Revenues from the Systems and Technology segment totaled $4.3 billion for the quarter, down 26 percent from the fourth quarter of 2012. Systems and Technology pre-tax income was $0.2 billion, a decrease of $768 million. Total systems revenues decreased 25 percent. Revenues from System z mainframe server products decreased 37 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 26 percent versus the prior year. Revenues from Power Systems decreased 31 percent compared with the 2012 period. Revenues from System x decreased 16 percent. Revenues from System Storage decreased 13 percent. Revenues from Microelectronics OEM decreased 33 percent.
- hga 13y agoOuch, ouch, ouch! Power Systems includes their extremely neat (architecturally, at least) AS/400 derived System i machines. Wonder how significant the loss in System z MIPS sold is, these machines are bought as much or more for I/O than raw CPU (which is I'm sure particularly expensive with these machines). For example, a lot of database queries/batch operations to get the set of all your credit and/or debit cards that did transactions at Target during the theft period. To the extent everyone is moving to UNIX(TM) derivatives or using them exclusively in startups (OK, let's not forget Windows too), few learn at school System z and i stuff.... Well, I don't think much of the consulting business, but it's clear they had to do something, especially when pretty much everyone lost out to x86 for "big iron" in classic disruptive innovation style and as this move demonstrates they culturally can't compete in that market.
- slurry 13y agoThe System i was folded into the POWER server line along with System x (midrange unix) a few years ago. It seems like they're trying to kill both lines with one stone, sadly. I could replace half my data center with a POWER box and manage the other half with it. Amazing machine if you ignore licensing...
- scholia 13y ago
- fidotron 13y agoIndeed, though that could very well be that no one else wants to buy it as much as IBM not wanting to sell it. POWER as an architecture seems to have thoroughly lost momentum everywhere except at IBM themselves (the console market dropped it, what remains of PA Semi do ARM based designs in Apple), which is a bad sign. MIPS and SPARC were both here before.
- nitrogen 13y agoPOWER still has life in embedded/SoC applications and IBM's mainframes, I'm sure. There are CPUs in places you'd never think existed.
- girvo 13y agoPOWER are used in cars, iirc? I also was looking at a neat little POWER chip the other day to play with. Cool architecture.
- dagw 13y agoThose are Freescale Power CPUs, not IBM Power CPUs. Entirely separate company focusing on an entirely different market.
- vonmoltke 13y agoIBM no longer has anything to do with embedded PowerPC. That is all Freescale. The lines diverged sometime back in 2005 or 2006. The POWER5, POWER6, and POWER7 are quite a bit different from the PowerPC.
- jmsduran 13y agoFormer IBM'er here. Power Systems are not as ubiquitous as you think. Their biggest customers are insurance/banking companies, but that consumer base has been gradually shrinking with organizations migrating to more affordable commodity clouds (Amazon, etc.) and services. The Power Division within STG has been declining in revenue for at least 6 straight quarters, and employees within that division are first on the list whenever IBM wants to perform a layoff.
- chrisgd 13y agoBut not in time for IBM to include the one-time gain to offset the one-time losses in the earnings report this week.
- deleted 13y ago[deleted]
- iends 13y agoSurely the deal could have been announced earlier in the week, if they wanted it to. Some other reason caused them to wait to announce it.
- midas007 13y agoSo the bazillion dollar question is: when will there be more open source hardware in commodifying desktop and low-end servers businesses?
- matthewmacleod 13y agoFascinating that IBM's entire lower-end server business is worth about two thirds of Snapchat.
- n1ghtmare_ 13y agoI came here to say exactly that. It's absolutely crazy.
- rplnt 13y agoThe value is probably closer to reality. Don't know what is Snapchat really, but other hip online whatever (instagram, tumblr, facebook, ...) are insanely overvalued for some weird reason.
- herge 13y agoEh, Snapchat is worth more than half of Sun Microsystems.
- coliveira 13y agoThat's because social websites are in the business of taking money from speculators and unsuspecting investors. The valuation doesn't represent their revenue-producing capacity, just the fact that they can be traded by speculators for the (remote) possibility of becoming the next Facebook.
- loceng 13y agoWell, in part though these social networks can theoretically be worth the amounts they state - that is if they're not factoring competition and that users are mobile and can easily start using another service very quickly. This is why governance of the ecosystem is the next competitive advantage layer.
- chaz 13y agoLINE, a free messaging app in Japan, made $194m in a single quarter, and its high margin business continues to grow fast. It's monetized through virtual goods and partnerships. And yet, it's nearly unheard of in the US. I'm not sure if SnapChat is a winner and if their multi-billion dollar valuation is correct, but there's there's still whitespace in the market and plenty of money to be made. http://www.techinasia.com/line-app-financials-q3-2013-sees-revenue-194-million-bucks/ http://www.techinasia.com/line-app-financials-q3-2013-sees-r...
- mariusz79 13y agoIs that because 2.3B was not enough to buy Nest? :)
- afhsfsfdsss88 13y agoInternational [used to make]Business Machines
- mtgx 13y agoI'll repost my comment from TheVerge: It just boggles my mind that a decade and a half after Innovator’s Dilemma and Innovator’s Solution came out, which I’m sure every CEO has read so far, there are still so many companies that repeat every damn mistake in the book. Heck, IBM is actually given as prime example for why big companies fail, with their past failure in the micro-computer market. I mean look how crazy this is. IBM sells the server business because it’s “not profitable for them”: “It’s underperforming because of the cost of doing business on IBM’s side,” he said. But on the other hand, Lenovo wants it because they consider it a profitable business: “Low-cost servers are the fastest-growing, most attractive area of the server business right now, so this would make sense,” http://www.bloomberg.com/news/2013-04-18/ibm-said-to-be-in-talks-to-sell-low-end-server-unit-to-lenovo.html http://www.bloomberg.com/news/2013-04-18/ibm-said-to-be-in-t... This was written to the letter in Innovator’s Dilemma – a decade and a half ago – and yet IBM still failed to see it coming. Some companies just deserve to burn. There’s no excuse. Companies getting disrupted need to adjust their cost structures, if not they need to create entirely new business spin-offs that can act as independent businesses. This was discussed in Innovator's Solution. It would've given them the ability to actually make money off of this "fast growing sector" like Lenovo calls it. But because of their current cost structures, they can't do it now. They are now moving up-market to software and services, and letting Lenovo, a down(er)-market player take this business away from them. What do they think will happen in 5-10 years? Lenovo (or some other PC player/new server player, currently) will move up-market yet again, and do what IBM does cheaper, while still being very profitable, while IBM will be forced to sell that business, too. The solution to disruption isn't to run away (at least not in the long-term). This will happen to Intel, too, within 2-3 years. Right now, Intel makes 70 percent of its revenue from ~$200 chips in the PC market. In 2, maybe 3 years at most, that business will be completely commoditized, as ARM chips reach similar performance levels at much low cost. Intel has tried, with little success, to enter the mobile market, but right now they aren't making any money, and are in fact losing money with Atom chips, especially since they're paying OEMs to buy their chips [1] (anti-competitive? You tell me). Trying to succeed with Atom is sort of the right solution, but if they aren't going to make money with their own cost structures, then it's going to fail. Trying to succeed with Core chips by lowering power consumption is a losing proposition because those chips are much more expensive. [1] - http://www.computerworld.com/s/article/9245530/How_Intel_is_buying_a_piece_of_the_tablet_market http://www.computerworld.com/s/article/9245530/How_Intel_is_...
- lispm 13y agoThe US continues to puzzle me. China is seen as aggressor in Cyberwar, Chinese hard- and software is accused of having security problems, there are lots of discussions about the more aggressive role of China in Asia, the US has a huge trade deficit with China, China is accused of spying, ... But the US continues to sell its companies and its business to China and imports stuff from there more and more. Does the US have an idea what to do to balance the relationship - besides sending the Navy or let bomber airplanes fly over disputed areas? http://www.reuters.com/article/2013/11/27/us-china-defense-usa-idUSBRE9AP0X320131127 http://www.reuters.com/article/2013/11/27/us-china-defense-u... Note the US government needs to approve such deals: http://www.bloomberg.com/news/2013-02-14/make-it-easier-for-china-to-buy-u-s-businesses.html http://www.bloomberg.com/news/2013-02-14/make-it-easier-for-...
- sargun 13y agoUS companies operate as individual entities. Our government doesn't have end-to-end control over commerce.
- lispm 13y agoThe US government needs to approve such deals.
- kabdib 13y ago... and that's only a small part of the government.
- icambron 13y agoThe US government can't reject them for "we don't like that country" reasons, because that's outside of the scope of its regulatory powers. Regulatory approval of acquisitions is based on competition considerations, not trade war considerations. If they rejected a deal for improper reasons, they'd get sued, and they'd lose.
- canistr 13y ago
- wcchandler 13y agoHere's the press release which gives a bit more information: http://www-03.ibm.com/press/us/en/pressrelease/43016.wss http://www-03.ibm.com/press/us/en/pressrelease/43016.wss
- chiph 13y agoThey were dumb to get rid of the "Netfinity" branding. And even dumber to sell the division. $20 EPS, here we come!
- johnward 13y agoWell the article mentioned 7,500 employees so that has to be close to the billion dollar range for salary/benefit reduction. So that is one way to go after $20 eps...
- balozi 13y agoIBM still has their usual business of building questionable enterprise applications to fall back on. That or continue building $200-million supercomputers for the NSA. Eh...Sorry, I meant Department of Energy.
- Grue3 13y agoWhat does IBM even do these days? It's like Nokia selling their mobile phone division to Microsoft.
- nubzilla 13y agoThey do things like create web-based health insurance exchanges that are complete failures http://www.mprnews.org/story/2013/12/20/faulty-mnsure-software-never-tested http://www.mprnews.org/story/2013/12/20/faulty-mnsure-softwa... http://minnesota.cbslocal.com/2014/01/07/legislative-auditor-mnsure-website-rollout-failed-in-many-ways/ http://minnesota.cbslocal.com/2014/01/07/legislative-auditor...
- johnward 13y agoIBM does enterprise software and professional services. It's much more profitable than low end hardware. They are one of the largest software companies in the world. A lot of consumers just don't get as much exposure to the brand to realize how big it is. If you've ever worked in the corporate world you would know.
- jzwinck 13y agoI have worked in the corporate world for a decade, and the only things I have seen IBM used for were servers (x86 and Z Series). Not once has someone said, hey let's get some software from IBM. Now we'll get our servers from Lenovo. I hope their excellent industrial design doesn't suffer (as it did a bit in the ThinkPad line).
- johnward 13y agoThey bring in close to $30b in revenue each quarter and only a small portion of that is hardware. It's quite possible you do use IBM software and don't know it because you know it as another brand they bought or you work with a competing vendor and really don't have any IBM software. It's also possible you aren't in an enterprise shop.
- AlisdairO 13y ago
- manishsharan 13y agoIs the market for low end servers still viable ? The alternative to a low end server is the cloud server and it is much better option financially. I think we would see a trend where companies would sell hosted infrastructure solutions ( e.g. MS Exchange, sharepoint etc. , Databases , firewall, etc.) and throw in a cluster of low end servers for free.
- codingdave 13y agoWe're talking hardware here - whether you own it yourself, or it is "in the cloud", there is still a metal box somewhere behind it all, so there is still a market for those metal boxes.
- jzwinck 13y agoYes, but the biggest cloud providers build their own hardware. Google, Facebook, Backblaze, and more to come I'm sure. Intel and Micron and Foxconn will remain happy, but vendors of turnkey servers perhaps less so.
- manishsharan 13y agoMy point was that there may be no viable market for the metal; there may be a very small market of service providers who might might require made to order servers or may be even build their own like here http://www.opencompute.org/ http://www.opencompute.org/ . There won't be any reasonable margins left in the low end server market to sustain a hardware only company The existing market of SMBs and enterprises for "the metal" is going away.
- Oculus 13y agoIsn't Lenovo beginning to encroach into monopoly territory? I keep hearing how they are purchasing large chunks of the current PC market.
- jzwinck 13y agoHardly. HP and Dell cover most of the same ground, from laptops to mid-size servers. And the consumer space has Apple of course, and the enterpise has...SuperMicro? It has been more or less like this for some time now.
- vonmoltke 13y agoSuperMicro doesn't sell pre-built machines. However, in the case of our small company, they have received the lion's share of the money we spent on high performance hardware in the past couple years, as we no longer buy pre-built machines for our cluster. We buy our desktops and laptops from Dell, though.
- shiftpgdn 13y agoSame here. I looked at HP, IBM and Dell but the first two make you go through awful 3rd party vendors that seem stuck in the 90s and while I liked what Dell had to offer it was just too expensive unless you NEED the prosupport in which case it's not a terrible deal.
- ak217 13y agoSuperMicro does sell pre-built machines.
- gnoway 13y agoSupermicro yes, and you can actually buy Intel branded servers too. We've had really good experiences with Intel dual socket 1U and 4-in-1 2U systems.
- rtkwe 13y agoIn which business do they have no or limited real competition? In every product line there are 3+ other companies providing similar products.
- ktavera 13y agoIn the grand scheme of IBM's business strategy this makes sense. They sold off their consumer PC market to Lenovo already. The hardware game is not where the big money is. Would you rather be selling relatively cheap hardware or have an army of high end consultants billing out at $250+/hour? You can contract IT infrastructure, application development, BPM, legal and many other services from their professional services division. Want to start an international bank? IBM's financial services and global services will help you out. This is purely just the next step in their evolution to a pure services company with some top notch talent.
- iends 13y agoI'm not sure IBM wants to be a pure services company, in fact, software sales is a high margin business that makes IBM a huge chunk of change.
- dandare 13y agoIt immediately reminded me of the mini-mills example from Clayton Christensen's amazing talk on Disruptive Innovation http://www.youtube.com/watch?v=B5FxFfymI4g http://www.youtube.com/watch?v=B5FxFfymI4g
- caniszczyk 13y agokind of fun watching IBM just disintegrate in slow motion
- markshepard 13y agounfortunately, this is exactly what is happening. I started at IBM's server group (P-Series) and when I left (right around when Sam Palmisano retired) there was a slow move towards changing from a development company to acquisition company. Sad to see it decay.. hopefully they have a plan.
- Nelson69 13y agoWell, they're changing... Honestly, for years watching them sell stuff and gradually back out it's looked like they were dying. Now it's very clear that they are making a gigantic bet on Watson and Watson like technologies. That's exciting.
- mindslight 13y agoToo bad IBM didn't trade it and get Thinkpad back.
- scott_karana 13y agoI've been happy with my Lenovos. We had a bunch of T420s at my last employer, and they were solid. Likewise, my personal X220 has held up fantastically. Some of the new laptops follow annoying market trends (bastardized keyboards, lack of IPS screens, hard to repair, lack of connectivity options), but every other brand is doing that too.
- soDotNet 13y agoSo much butt hurt here...x86 is a low margin commodity with too many companies out there racing to the bottom. I for one applaud to IBM's decision to evolve their business.
- deleted 13y ago[deleted]
- kamilszybalski 13y agoAfter IBM acquired softlayer technologies, this is a natural move.
- daniel-levin 13y ago> Lenovo said it would settle the transaction with $2 billion in cash and the balance in its own Hong Kong-listed shares. Now this is the interesting part of the article. This means that IBM will own $300 million in Lenovo stock. Sure, it may dump them for cash, but it now has a stake in Lenovo, the company that 'has overtaken HP and Dell to become the world’s biggest manufacturer of PCs.'