Lenovo Balks Then Walks Away From Buying IBM's Server Business, Sources Say

Mark Loughridge IBMIBM CFO Mark Loughridge

Talks have broken down between IBM and Lenovo for a multi-billion sale of a good chunk of IBM’s server business, Fortune’s Miguel Helft reports.

The two couldn’t agree on a fair price. Neither company had publicly acknowledged the negotiations, but various news reports put the deal at between $2.5 and $6 billion.

The deal covered IBM’s Intel x86 server business, which generates close to $5 billion in sales, or about a third of IBM’s overall server revenue, Helft reports.

That sounds like a lot of revenue, but Intel x86 servers have become a commodity business that don’t generate nearly as much profit as high-end, specialty servers.

Even if IBM sold that unit, the company would still have lots of other server products in its lineup including its PowerSystems family, which use IBM’s own Power CPUs. These compete with Oracle’s new T5 server announced last month. There’s also the PureSystems family, which are “tuned” for specific tech uses, IBM says.

It’s not surprising that IBM wants to shrug out of the low-end server business if it can. Last month, IBM missed expectations on both profit and revenue for the quarter, and CFO Mark Loughridge laid a lot of blame on its server business during a conference call with analysts. He promised big changes.

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