China Approves Lenovo and IBM's $2.3bn x86 Server Deal

The Chinese Ministry of Commerce's anti-monopoly bureau has approved Lenovo's proposed $2.3bn deal to acquire US technology giant IBM's low-end server business.

The deal, however, still requires US regulatory approval.

Lenovo's stock finished 0.19% lower in Hong Kong on 4 July.

The deal, announced in January 2014, is expected to be completed by the end of 2014, Lenovo chief executive Yang Yuanqing said earlier in the week.

Lenovo Group, the world's largest maker of personal computers agreed to buy IBM's low-end server business for $2.3bn (£1.3bn, €1.7bn) amid a slump in global PC shipments.

The purchase adds an additional revenue stream to Lenovo's shrinking PC business and will help the firm transform itself as a growing force in mobile devices and data storage servers.

Analysts have said that Lenovo will probably find it easier than IBM to sell the x86 servers to Chinese firms as Beijing attempts to localise its IT purchases following revelations about US global surveillance practices.

The sale helps IBM exit its low-margin x86 business and concentrate on its decade-long transition to the more profitable software and services business.

The x86 unit has annual revenues of about $4bn. The unit has reported seven consecutive quarters of declining revenue.

Regulatory Hurdle

In the US, the Committee on Foreign Investment reviews deals for national-security issues and is headed by Treasury Secretary Jacob J Lew.

The panel comprises the heads of several federal agencies including the departments of commerce, defence, homeland security, justice, state and the Office of the US Trade Representative.

Lenovo could lose some of IBM's traditional customers in the US, but any loss could be compensated by gains in its home market, Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial told Bloomberg in January 2014.

PC Shipments Bottom-Out

Worldwide PC shipments fell 10% in 2013, marking the worst yearly decline in the market's history - but there could be a light at the end of the tunnel, as analysts claimed the drop had "bottomed out," and that the market was expected to stabilise.

Shipments fell by 6.9% to 82.6 million units in the fourth-quarter of 2013, but analyst firm Gartner, which has been tracking the industry since the 1980s, said the worst could well be behind it.