Feeds

Lenovo deal to buy IBM x86 server biz moving along fast

Time for Ginni to make a call to GloFo or TSMC for fab spinout

Internet Security Threat Report 2014

It is becoming increasingly clear that IBM CEO Ginni Rometty is annoyed with the performance of the company's systems business. Annoyed enough to spin off all or part of its System x server business to China's Lenovo Group, according to rumors that surfaced last week.

The US channel trade rag CRN broke the story of an impending x86 server deal between IBM and Lenovo and has anonymous sources that now say the deal is "moving quickly". Also, as El Reg suspected, those sources say Big Blue is keeping control of its BladeCenter blade servers and Flex System modular systems.

One rumor has it that Lenovo will pay between $5bn and $6bn for all or some of the System x business, which generated $5.6bn in sales last year and is a little more than a third of the company's overall $15.6bn in system sales, as reckoned by Gartner.

That is a lot of revenue to walk away from, but many of us suspect that IBM is bleeding hundreds of millions of dollars each quarter peddling commodity onesie and twosie x86 boxes. The company has never been a low-cost manufacturer of anything, so ditching this x86 server business might make tactical financial sense even if it is strategically dubious.

The sources contacted by CRN also say that IBM employees at product engineering and server firmware development labs in the Research Triangle Park, North Carolina labs where its System x machines originate - have been told they will be working for Lenovo starting June 1.

Interestingly, the Flex System modular servers, which are IBM's "UCS Killers" after Cisco Systems freaked Big Blue out in the enterprise data center, are also designed, for the most part, in North Carolina. IBM has been cagey about where the Flex System chassis and server nodes, based on both x86 and Power processors, are manufactured.

It is reasonable to assume that high-end System x servers with four or eight sockets will remain with IBM and perhaps the iDataPlex rack-blade hybrids that were created for hyperscale data centers and HPC workloads. The latter have not exactly taken the market by storm because of their cost and non-standard rack configurations. (To IBM's credit, it tried a non-standard rack design for the iDataPlex that offered better compute density, just as the Open Compute Project championed by Facebook is doing to suit its own needs.)

What about Lenovo?

Lenovo has been growing fast in servers and is eager to compete very aggressively and get more of a hold in United States and Europe. IBM wants access to Chinese states and provinces to peddle Smarter Planet consulting services and the big data platforms that support such efforts. A deal could be a way to grease the skids.

IBM gets out of commodity x86 servers, gets a sweet deal from Lenovo to get the boxes it needs to do Smarter Planet deals or put thousands or tens of thousands of machines in enterprise customer accounts, and everybody wins. Lenovo gets IBM's System x channel and IBM's System x brand and is the number three x86 server maker in the world, snap!, just like that.

Such a deal with Lenovo could set the stage for IBM to transfer manufacturing (and possibly motherboard and chassis design) for its Power Systems line to Lenovo as well.

IBM may want to keep designing its own Power and System z chips, and it may even indulge by upgrading its fab in East Fishkill, New York to 22 nanometers to make the next Power8 and System z13 engines, expected next year. But after that, and given IBM's 2015 Roadmap to get to at least $20 per share in operating earnings per share, it seems unlikely that the company will push into 14 nanometer and down further to 10 nanometer process technology over the following two processor generations.

Each leap costs billions of dollars, which is why all the server vendors who made their own chips have gone to contract foundry partners or are in the process of doing so. (There are not very many left.)

IBM could have played this x86 server racket a bit differently and bought Advanced Micro Devices or etched its own Xeon or Opteron processors. But again, IBM is not a low-cost manufacturer. It produces relatively low volumes and, historically and more importantly, it did its component and system manufacturing in North America and Europe, close to its customers decades ago but also where it was more costly.

With System and Technology Group, which makes IBM's chips, systems, and storage, seeing a 17 per cent drop in the most recent quarter (to $3.11bn and an operating loss of $405m which means the actual loss was much bigger after overhead was heaped on), it was no surprise that Rometty put her chief of strategy, Tom Rosamilia, in charge of STG this week and swapped Rod Adkins into the strategy job.

Considering that Rosamilia has run both Power Systems and System z businesses, it would be unsurprising if he manages the System x spinoff and whatever changes that IBM will be making to its Power Systems, System z, and storage lineup, particularly

It is not clear if Adkins is in the dog house with Rometty because the STG business is losing money thanks to a 7 per cent mainframe sales slip in the first quarter and with Power Systems revenues down 32 per cent, System x down 9 per cent, and storage down 11 per cent. The top brass at IBM know each other for a long time, and Rometty may have just swapped the execs to show the troops and Wall Street she was doing something.

That is a tiny move. But some big ones are very likely on the horizon. ®

Remote control for virtualized desktops

More from The Register

next story
The cloud that goes puff: Seagate Central home NAS woes
4TB of home storage is great, until you wake up to a dead device
Azure TITSUP caused by INFINITE LOOP
Fat fingered geo-block kept Aussies in the dark
You think the CLOUD's insecure? It's BETTER than UK.GOV's DATA CENTRES
We don't even know where some of them ARE – Maude
Want to STUFF Facebook with blatant ADVERTISING? Fine! But you must PAY
Pony up or push off, Zuck tells social marketeers
Yahoo! blames! MONSTER! email! OUTAGE! on! CUT! CABLE! bungle!
Weekend woe for BT as telco struggles to restore service
Oi, Europe! Tell US feds to GTFO of our servers, say Microsoft and pals
By writing a really angry letter about how it's harming our cloud business, ta
prev story

Whitepapers

Choosing cloud Backup services
Demystify how you can address your data protection needs in your small- to medium-sized business and select the best online backup service to meet your needs.
Getting started with customer-focused identity management
Learn why identity is a fundamental requirement to digital growth, and how without it there is no way to identify and engage customers in a meaningful way.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Choosing a cloud hosting partner with confidence
Download Choosing a Cloud Hosting Provider with Confidence to learn more about cloud computing - the new opportunities and new security challenges.
Intelligent flash storage arrays
Tegile Intelligent Storage Arrays with IntelliFlash helps IT boost storage utilization and effciency while delivering unmatched storage savings and performance.