May 1, 2013 11:42 pm

Price scuppers IBM server sale to Lenovo

A deal that would have seen IBM sell parts of its server business to Chinese computer maker Lenovo has broken down on Tuesday night, according to people familiar with the matter.

Talks between the two companies emerged last month, sending shares of Lenovo up 9 per cent.

However, after weeks of discussions, the parties were unable to agree on a price for the division. It includes IBM’s x86 server business and is estimated to generate about $5bn in annual sales.

It was not immediately clear if IBM would try to sell the unit to another buyer, or if talks with Lenovo might resume. At least one other strategic bidder was interested in the division as recently as late April, people familiar with the situation said.

IBM is moving away from hardware sales and into the enterprise software and services business. However, it still makes high-end servers.

Lenovo, meanwhile, has become the world’s second-largest PC maker behind Hewlett-Packard. In 2004 it acquired IBM’s ThinkPad PC business for $1.75bn, making it the third-largest PC vendor at the time.

Lenovo is increasing its share in a declining market. In the first quarter, as overall PC shipments fell 14 per cent, Lenovo shipments were flat. It is also making inroads into the server business, and has begun producing tablets and smartphones.

Dell, once the largest PC maker and now the target of a management-led buyout, has fallen to third position as it also tries to pivot to a software and services business. It saw shipments fall 10 per cent in the first quarter.

Fortune first reported that the talks had broken down.

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