Lenovo rose to the top of the PC industry after acquiring IBM’s struggling ThinkPad business for $1.75 billion in 2005. But with powerful competition from smartphones and tablets, the Beijing-based computer company is seeking to diversify by moving into the x86 server business.
For IBM, the extra capital should allow the company to continue to concentrate on its more profitable businesses such as software.
The announcement comes after a tumultuous bargaining process that saw negotiations deteriorate last year over the price. IBM reportedly sought up to $6 billion for its server business.
IBM's server business posted a loss of $26.4 million in the last 12 months and profits of $187 million in the 12 months that ended last March. Lenovo told Reuters that the x86 generates $4.6 billion in annual revenue.
In the wake of revelations about the U.S. security state, Beijing is trying to reign in foreign technology purchases. Analysts say that Lenovo will likely have an easier time selling the x86 servers to local companies than IBM.
The acquisition, which still needs to be approved by the Committee on Foreign Investment in the United States., would boost Lenovo’s market share in the sector from 2 percent to 14 percent.