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Tuesday, 21 January 2014

Lenovo in talks with IBM about buying part of its business

Chinese Lenovo in talks with American International Business Machines Corp. (IBM) to buy its production cost servers, reported The Wall Street Journal, citing its sources. The deal is beneficial to both parties: IBM will get rid of low-profit units, and Lenovo to diversify its business amid falling sales in the PC market.

Lenovo has officially confirmed it is in talks with IBM, but details were not disclosed. Last spring, the Chinese company has already discussed the possibility of such a deal with the Americans, but the parties could not agree on price. Lenovo then evaluated division of IBM is less than $ 2.5 billion, according to a source WSJ. However, some analysts estimate the asset to $ 4.5 billion at the end of September Lenovo had cash reserves of $ 2.6 billion

If the talks are successful, and the deal is approved by U.S. regulators, the Chinese manufacturer can compete with companies such as Hewlett-Packard and Dell, in the segment of budget servers. Previously, Lenovo became the leading PC manufacturer in the world, ahead of HP. According to Gartner, in the fourth quarter last year, the market share of Lenovo PC sales rose to 18.1%.

"The deal will allow Lenovo to enter the new growth path", - quotes WSJ analyst Sanford C. Bernstein Alberto Moel. In his opinion, the sale of servers, followed by contracting their service more profitable type of business than just selling PCs. On the unit cost of IBM in 2012 had $ 4.9 billion to $ 15.4 billion from the company's revenue, according to analysts Morgan Stanley.

IBM deal will allow to continue going out of business equipment manufacturing started in 2005 selling the same Lenovo his computer division and focus on software. In October last year, the company reported that sales in the sixth consecutive quarter of decline. For the first nine months of 2013 IBM losses in this segment totaled $ 713 million compared with a loss of $ 253 million a year earlier. As an analyst told Bloomberg Sun Hung Kai Financial, Stephen Yang, these losses could push the company to resume negotiations on the sale of the server business. IBM, perhaps looking for an opportunity to minimize losses before the situation deteriorates," - said Mr. Yang.

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