Description
Lenovo will acquire following the official closing on October 1, 2014, IBM’s x86 server
business for $2.1 billion. Following closure, Lenovo is adding a best-in-class x86 server business
that allows Lenovo to fully participate in the $42 billion x86 server market worldwide, and
complements Lenovo’s successful commercial Think PC business. This deal also enhances
Lenovo’s and IBM’s strong long-term strategic partnership that began in 2005 with Lenovo’s
acquisition of IBM’s PC division.
IBM x86 closing – Top 20 Q&A
Q1. What did Lenovo and IBM announce today?
A. Lenovo will acquire following the official closing on October 1, 2014, IBM’s x86 server
business for $2.1 billion. Following closure, Lenovo is adding a best-in-class x86 server business
that allows Lenovo to fully participate in the $42 billion x86 server market worldwide, and
complements Lenovo’s successful commercial Think PC business. This deal also enhances
Lenovo’s and IBM’s strong long-term strategic partnership that began in 2005 with Lenovo’s
acquisition of IBM’s PC division.
Q2. Why is Lenovo acquiring this business?
A. The deal for IBM’s industry standard x86 server business is an expansion of Lenovo’s existing
x86 hardware business. It lifts Lenovo from number six in the world to number three with
approximately 14 percent market share. And these products not only support Lenovo’s overall
financial performance and strengthen its core PC business but also help fuel its PC+ investments
worldwide.
The acquisition builds on a long-standing and successful partnership between IBM and Lenovo,
who have proven before that they can execute a deal that benefits both companies, their
shareholders and most of all, their customers.
Q3. What are the financial terms of this agreement?
A. The estimated purchase price is approximately US$2.1 billion. US$1.8 billion will be paid at
close in cash after estimated adjustments and approximately US$280 million in Lenovo stock,
based on the closing prices of Lenovo’s stock price on September 26, 2014.
Q4. At announcement in January 2014, the total purchase price was US$2.3 billion. What’s
changed?
A. Lenovo is paying $200 million less in cash because the value of the inventories and the
deferred revenue liability are different today than they were estimated when the deal was first
announced in January.
Q5. HP has been actively going after IBM’s x86 customers and has made some impressive
gains since this deal was announced. Did the terms of the deal change because of the decline
of the business since?
A. No. Lenovo is paying $200 million less in cash because the value of the inventories and the
deferred revenue liability are different today than they were estimated when the deal was first
announced in January.
Regarding our competitors, you need to remember that while some of them have been making
a lot of noise and perhaps overstating their case, Lenovo has been subject to a mandated quiet
period while the deal was going through the mandatory government approval process.
Much of this noise has been around generating doubt and uncertainty about the deal getting
closed. With the approval of the deal by the appropriate regulatory agencies around-the-world,
these concerns have been fully addressed.
Now that the deal is closed (as of October 1, 2014), you can expect Lenovo to go on the
offensive and show our business partners and customers how the combination of System x
technology, products and services combined with Lenovo’s operational excellence and
customer focus are in fact the winning combination for the future of the Enterprise.
Q6. How much does Lenovo expect this deal to add to earnings this year?
A. Our CEO has said that we intend to have a profitable $5 billion enterprise business within the
year. We cannot speculate on how much it will add to earnings, but we believe it will be
profitable. This deal will immediately lift Lenovo from number six in worldwide market share to
number three, growing from less than two percent to 14 percent market share with this
acquisition.
Q7. How many people and exactly what assets are moving from IBM to Lenovo?
A. Approximately 6,500 IBM employees in more than 60 countries are expected to transfer to
Lenovo at the close of the transaction. These include product development, manufacturing,
sales and marketing, and staff employees in locations such as Shanghai and Shenzhen, China,
and Taipei, Taiwan; Austin, Texas; Raleigh, North Carolina; and Rochester, Minnesota.
IBM also makes x86 servers via contract manufacturers in Sao Paulo, Brazil; Szekesfehervar,
Hungary; and Guadalajara, Mexico, and those contracts have also been assigned to Lenovo as
part of the deal.
Lenovo will acquire IBM’s entire industry standard x86 server portfolio, including:
- All of IBM’s x86 server product lines including towers, racks, high-density and blades
- IBM Systems Networking portfolio assets including embedded, top-of-rack switches and
software
- A highly-skilled x86 sales force, key labs and other facilities supporting these products
Q8. Will there be any layoffs as result of this transaction?
A. We will not speculate on these matters, as we are just now beginning the process of bringing
our teams together to build a strong growing business that can ultimately become an industry
leader. Our focus in the coming months will be a smooth and seamless integration for our
employee and customers.
Q9. Are IBM’s server patents included in this deal?
A. Yes, all relevant intellectual property (IP) will be exchanged with the business in this
transaction.
Q10. Why is Lenovo buying yet another company that IBM seems to be uninterested in? Why
does Lenovo believe they can do a better job that IBM with this business?
A. The expansion of its existing x86 hardware business will immediately improve Lenovo’s
profitability, bolster its existing server business taking it from number six in market share to
number three worldwide, accelerate our move-up the industry’s value chain and enhance the
overall success of our PC+ business. This is a logical, rational move to drive profitability in
Lenovo’s core commercial business that not only provides a significant profit pool – with a PTI
that is several times that of the existing PC business, but it also directly fuels our ability to
invest in high-growth PC+ businesses (including tablets, smartphones and smart TVs). This is a
very clear fit with Lenovo’s strategy.
Lenovo will leverage its efficient, proven business model, outstanding manufacturing
capabilities and global PC leadership to create a strong x86 business worldwide – repeating the
success it has had in the PC industry since its 2005 acquisition of IBM PC division.
Q11. Excluding this transaction, what is the state of Lenovo’s server business?
A. Lenovo is a growing x86 hardware provider, the sixth largest worldwide. Our business while
still small, has doubled every year over the past three years and we are already providing these
kinds of products to customers in the U.S. and Europe, as well as in other markets.
Importantly, our customers are asking us for servers as well as PCs, and we already know how
to build, sell and support high quality x86 hardware at competitive prices. Now we will be
better able to provide our customers with the integrated solutions, the service and support
they have been asking for.
Q12. What is the status of Lenovo’s acquisition of Motorola Mobility?
A. We are on track to close our acquisition of Motorola Mobility by the end of the year.
Q13. Why did you do both these deals at the same time? Aren’t you risking a large amount of
cash all at once?
A. Both these deals are a good fit for Lenovo’s growth strategy and will benefit customers,
employees, communities and investors. While the close timing is coincidental, both
investments provide Lenovo with exceptional talent, a global footprint and a competitive edge
in the marketplace.
We are comfortable with the risk and highly confident in our ability to execute based on our
M&A track record over the past decade. Lenovo has successfully acquired and integrated four
businesses since 2005, while also starting up three joint ventures. We have an excellent track
record in M&A integration, and in fact, we believe this is one of our core competencies.
Lenovo has over $US5 billion in cash on its balance sheet and sufficient credit lines in place. Our
balance sheet and other disclosures demonstrate that we have the resources in place to finance
both acquisitions, cover integration costs and sustain the broader business going forward.
Q14. How much overlap is there between Lenovo’s and IBM’s server businesses?
A. Lenovo’s ThinkServer and IBM’s x86 server portfolios complement each other. Lenovo’s
portfolio is primarily focused on small and medium businesses, while IBM’s portfolio is focused
on large enterprise and data center customers. The companies’ customer bases are
complementary as well, and both current and future customers will have access to a stringer
business partner with a broad portfolio of products and services.
Q15. Will Lenovo continue to invest in products and solutions that IBM has been prioritizing?
A. One of Lenovo’s top priorities is maintaining the continuity of the business, and therefore we
are committed to following the IBM product roadmap. We have no plans to alter the
investment priorities on x86 technology or strategic platforms.
Q16. Will Lenovo sales people be able to sell IBM-branded products immediately? Will the
former IBM sales people who have joined Lenovo be able to sell ThinkServer x86 products
immediately?
A. Yes. While it makes sense initially for Lenovo sellers and the former IBM sellers who have
joined Lenovo to continue to focus on their respective current x86 offerings, in the coming
weeks all of our enterprise sellers will be getting ”advanced degrees” in a new set of products
Q17. Will the System x products retain IBM’s brand? If so, for how long?
A. We will continue to use the IBM brand on System x products for about a year. We have not
made any branding decisions yet for System x products beyond that.
Q18. What happens to the ThinkServer brand name?
A. Our ThinkServer portfolio will continue to exist under the ThinkServer brand name. There are
no plans to change our server branding strategy.
Q19. How does this acquisition affect your partnership with EMC?
A. There is no change in Lenovo’s agreement with EMC. Lenovo’s partnership with EMC is
focused on various storage products – entry level and high end, and our goal is to be able to
address a full range of customer needs – from small office/home office to large commercial
customers. We believe that we will become an even stronger partner with EMC, with a broader
market reach and a reinforced ability to grow our joint business.
Q20. Who is going to run Lenovo’s x86 server business?
A. Adalio Sanchez, currently general manger, System x and PureFlex, IBM, is joining Lenovo as
part of this acquisition, and will continue to lead IBM’s System x business as senior vice
president, Enterprise Systems, reporting to Gerry Smith, executive vice president, and
president, Enterprise Business Group.
doc_855792245.pdf
Lenovo will acquire following the official closing on October 1, 2014, IBM’s x86 server
business for $2.1 billion. Following closure, Lenovo is adding a best-in-class x86 server business
that allows Lenovo to fully participate in the $42 billion x86 server market worldwide, and
complements Lenovo’s successful commercial Think PC business. This deal also enhances
Lenovo’s and IBM’s strong long-term strategic partnership that began in 2005 with Lenovo’s
acquisition of IBM’s PC division.
IBM x86 closing – Top 20 Q&A
Q1. What did Lenovo and IBM announce today?
A. Lenovo will acquire following the official closing on October 1, 2014, IBM’s x86 server
business for $2.1 billion. Following closure, Lenovo is adding a best-in-class x86 server business
that allows Lenovo to fully participate in the $42 billion x86 server market worldwide, and
complements Lenovo’s successful commercial Think PC business. This deal also enhances
Lenovo’s and IBM’s strong long-term strategic partnership that began in 2005 with Lenovo’s
acquisition of IBM’s PC division.
Q2. Why is Lenovo acquiring this business?
A. The deal for IBM’s industry standard x86 server business is an expansion of Lenovo’s existing
x86 hardware business. It lifts Lenovo from number six in the world to number three with
approximately 14 percent market share. And these products not only support Lenovo’s overall
financial performance and strengthen its core PC business but also help fuel its PC+ investments
worldwide.
The acquisition builds on a long-standing and successful partnership between IBM and Lenovo,
who have proven before that they can execute a deal that benefits both companies, their
shareholders and most of all, their customers.
Q3. What are the financial terms of this agreement?
A. The estimated purchase price is approximately US$2.1 billion. US$1.8 billion will be paid at
close in cash after estimated adjustments and approximately US$280 million in Lenovo stock,
based on the closing prices of Lenovo’s stock price on September 26, 2014.
Q4. At announcement in January 2014, the total purchase price was US$2.3 billion. What’s
changed?
A. Lenovo is paying $200 million less in cash because the value of the inventories and the
deferred revenue liability are different today than they were estimated when the deal was first
announced in January.
Q5. HP has been actively going after IBM’s x86 customers and has made some impressive
gains since this deal was announced. Did the terms of the deal change because of the decline
of the business since?
A. No. Lenovo is paying $200 million less in cash because the value of the inventories and the
deferred revenue liability are different today than they were estimated when the deal was first
announced in January.
Regarding our competitors, you need to remember that while some of them have been making
a lot of noise and perhaps overstating their case, Lenovo has been subject to a mandated quiet
period while the deal was going through the mandatory government approval process.
Much of this noise has been around generating doubt and uncertainty about the deal getting
closed. With the approval of the deal by the appropriate regulatory agencies around-the-world,
these concerns have been fully addressed.
Now that the deal is closed (as of October 1, 2014), you can expect Lenovo to go on the
offensive and show our business partners and customers how the combination of System x
technology, products and services combined with Lenovo’s operational excellence and
customer focus are in fact the winning combination for the future of the Enterprise.
Q6. How much does Lenovo expect this deal to add to earnings this year?
A. Our CEO has said that we intend to have a profitable $5 billion enterprise business within the
year. We cannot speculate on how much it will add to earnings, but we believe it will be
profitable. This deal will immediately lift Lenovo from number six in worldwide market share to
number three, growing from less than two percent to 14 percent market share with this
acquisition.
Q7. How many people and exactly what assets are moving from IBM to Lenovo?
A. Approximately 6,500 IBM employees in more than 60 countries are expected to transfer to
Lenovo at the close of the transaction. These include product development, manufacturing,
sales and marketing, and staff employees in locations such as Shanghai and Shenzhen, China,
and Taipei, Taiwan; Austin, Texas; Raleigh, North Carolina; and Rochester, Minnesota.
IBM also makes x86 servers via contract manufacturers in Sao Paulo, Brazil; Szekesfehervar,
Hungary; and Guadalajara, Mexico, and those contracts have also been assigned to Lenovo as
part of the deal.
Lenovo will acquire IBM’s entire industry standard x86 server portfolio, including:
- All of IBM’s x86 server product lines including towers, racks, high-density and blades
- IBM Systems Networking portfolio assets including embedded, top-of-rack switches and
software
- A highly-skilled x86 sales force, key labs and other facilities supporting these products
Q8. Will there be any layoffs as result of this transaction?
A. We will not speculate on these matters, as we are just now beginning the process of bringing
our teams together to build a strong growing business that can ultimately become an industry
leader. Our focus in the coming months will be a smooth and seamless integration for our
employee and customers.
Q9. Are IBM’s server patents included in this deal?
A. Yes, all relevant intellectual property (IP) will be exchanged with the business in this
transaction.
Q10. Why is Lenovo buying yet another company that IBM seems to be uninterested in? Why
does Lenovo believe they can do a better job that IBM with this business?
A. The expansion of its existing x86 hardware business will immediately improve Lenovo’s
profitability, bolster its existing server business taking it from number six in market share to
number three worldwide, accelerate our move-up the industry’s value chain and enhance the
overall success of our PC+ business. This is a logical, rational move to drive profitability in
Lenovo’s core commercial business that not only provides a significant profit pool – with a PTI
that is several times that of the existing PC business, but it also directly fuels our ability to
invest in high-growth PC+ businesses (including tablets, smartphones and smart TVs). This is a
very clear fit with Lenovo’s strategy.
Lenovo will leverage its efficient, proven business model, outstanding manufacturing
capabilities and global PC leadership to create a strong x86 business worldwide – repeating the
success it has had in the PC industry since its 2005 acquisition of IBM PC division.
Q11. Excluding this transaction, what is the state of Lenovo’s server business?
A. Lenovo is a growing x86 hardware provider, the sixth largest worldwide. Our business while
still small, has doubled every year over the past three years and we are already providing these
kinds of products to customers in the U.S. and Europe, as well as in other markets.
Importantly, our customers are asking us for servers as well as PCs, and we already know how
to build, sell and support high quality x86 hardware at competitive prices. Now we will be
better able to provide our customers with the integrated solutions, the service and support
they have been asking for.
Q12. What is the status of Lenovo’s acquisition of Motorola Mobility?
A. We are on track to close our acquisition of Motorola Mobility by the end of the year.
Q13. Why did you do both these deals at the same time? Aren’t you risking a large amount of
cash all at once?
A. Both these deals are a good fit for Lenovo’s growth strategy and will benefit customers,
employees, communities and investors. While the close timing is coincidental, both
investments provide Lenovo with exceptional talent, a global footprint and a competitive edge
in the marketplace.
We are comfortable with the risk and highly confident in our ability to execute based on our
M&A track record over the past decade. Lenovo has successfully acquired and integrated four
businesses since 2005, while also starting up three joint ventures. We have an excellent track
record in M&A integration, and in fact, we believe this is one of our core competencies.
Lenovo has over $US5 billion in cash on its balance sheet and sufficient credit lines in place. Our
balance sheet and other disclosures demonstrate that we have the resources in place to finance
both acquisitions, cover integration costs and sustain the broader business going forward.
Q14. How much overlap is there between Lenovo’s and IBM’s server businesses?
A. Lenovo’s ThinkServer and IBM’s x86 server portfolios complement each other. Lenovo’s
portfolio is primarily focused on small and medium businesses, while IBM’s portfolio is focused
on large enterprise and data center customers. The companies’ customer bases are
complementary as well, and both current and future customers will have access to a stringer
business partner with a broad portfolio of products and services.
Q15. Will Lenovo continue to invest in products and solutions that IBM has been prioritizing?
A. One of Lenovo’s top priorities is maintaining the continuity of the business, and therefore we
are committed to following the IBM product roadmap. We have no plans to alter the
investment priorities on x86 technology or strategic platforms.
Q16. Will Lenovo sales people be able to sell IBM-branded products immediately? Will the
former IBM sales people who have joined Lenovo be able to sell ThinkServer x86 products
immediately?
A. Yes. While it makes sense initially for Lenovo sellers and the former IBM sellers who have
joined Lenovo to continue to focus on their respective current x86 offerings, in the coming
weeks all of our enterprise sellers will be getting ”advanced degrees” in a new set of products
Q17. Will the System x products retain IBM’s brand? If so, for how long?
A. We will continue to use the IBM brand on System x products for about a year. We have not
made any branding decisions yet for System x products beyond that.
Q18. What happens to the ThinkServer brand name?
A. Our ThinkServer portfolio will continue to exist under the ThinkServer brand name. There are
no plans to change our server branding strategy.
Q19. How does this acquisition affect your partnership with EMC?
A. There is no change in Lenovo’s agreement with EMC. Lenovo’s partnership with EMC is
focused on various storage products – entry level and high end, and our goal is to be able to
address a full range of customer needs – from small office/home office to large commercial
customers. We believe that we will become an even stronger partner with EMC, with a broader
market reach and a reinforced ability to grow our joint business.
Q20. Who is going to run Lenovo’s x86 server business?
A. Adalio Sanchez, currently general manger, System x and PureFlex, IBM, is joining Lenovo as
part of this acquisition, and will continue to lead IBM’s System x business as senior vice
president, Enterprise Systems, reporting to Gerry Smith, executive vice president, and
president, Enterprise Business Group.
doc_855792245.pdf