Lenovo’s long-awaited $2.1 billion acquisition of a line of servers from IBM, a deal that is expected to significantly expand Lenovo’s presence in the Triangle and make it the No. 3 player in the global server market, is expected to be completed on Wednesday.
Lenovo chairman and CEO Yang Yuanqing said during a conference call Monday that the combination of his company’s “operational excellence and efficiency” and IBM’s reputation for quality and innovation will produce a formidable competitor that can best rivals.
Lenovo, the world’s No. 1 PC maker, is based in China but has a headquarters in Morrisville that employs about 2,200 workers. Lenovo officials reaffirmed Monday that it would take all the IBM workers connected to the line of x86 servers it is buying. That includes more than 6,500 employees and contractors worldwide, including “well over one thousand” Triangle workers, Lenovo spokeswoman Milanka Muecke said in an email.
Lenovo executives had previously said the company’s local presence would roughly double with the IBM acquisition. “We are still working through the process and we are not prepared to give any specific numbers,” Muecke said.
IBM’s sprawling Research Triangle Park campus is the technology giant’s largest single site, but for years the company has steadfastly refused to specify how many employees it has here or in other locations. But IBM, which had 11,000 employees locally in 2006, is widely believed to have shed thousands of local workers since then.
Last week IBM announced that it had recently opened a new 72,000-square-foot disaster recovery center in RTP that demonstrated its commitment to the area. But the company declined to say how many employees were currently working in the center or how many more it intended to hire.
Lenovo officials didn’t rule out implementing job cuts down the road as Lenovo digests the IBM business.
“What exactly the future holds, we don’t know yet,” Jay Parker, president of North American operations, said in an interview. “Obviously, it’s not lifetime employment at Lenovo. Really, the business results will really dictate either hiring or reductions.”
The x86 line of IBM servers that Lenovo is buying, which boast sufficient computing power to handle the day-to-day operations of a midsize business, has become a commodity business. IBM will continue to sell other servers and will also continue to develop and sell software for x86 machines.
Lenovo entered the server business about five years ago. A server is essentially a souped-up PC that serves as a central processing hub for computer networks.
Gerry Smith, executive vice president at Lenovo, said that both IBM and Lenovo had some gaps in their server offerings. But, by combining them, “we have by far the strongest portfolio across the industry,” he said.
When the IBM/Lenovo deal was announced in January, there were questions about whether it would pass muster with U.S. regulators given the tensions between U.S. and China. But those fears were put to rest in August when Lenovo announced that the federal government had approved the deal.
That approval provides “more proof that Lenovo is a transparent and reliable global company,” Yang said.
This is the second major deal between the two companies with major ramifications for the Triangle. Lenovo entered the U.S. market and became a major employer locally when it acquired IBM’s PC business, including the ThinkPad brand, in 2005.
In recent years slack worldwide demand for PCs has pushed Lenovo to expand its product offerings to other devices, including smartphones and tablets. Lenovo has enjoyed considerable success with those efforts – today it is No. 4 in smartphones and No. 3 in tablets.
Lenovo doesn’t sell smartphones in the U.S., but that will change when the company completes its pending $2.9 billion purchase of Google’s Motorola smartphone business. That acquisition, which is expected to close before the end of the year, would boost Lenovo to No. 3 in worldwide smartphone sales.
When the IBM server deal was originally announced, the price tag was $2.3 billion rather than the $2.1 billion price disclosed Monday. But Wong Wai Ming, Lenovo’s chief financial officer, said that the final price was always subject to adjustment based on “certain balance sheet items, such as inventory.”
“The terms are exactly the same as before,” he said.
Likewise, in January about 7,500 IBM workers were expected to shift to Lenovo, but on Monday that number was reduced to more than 6,500. But Lenovo executives said nothing has changed with regard to Lenovo’s plan to take all of the IBM employees connected to the server business it’s acquiring.
“There might have been some variation, honestly, in who is coming over versus who is staying with IBM,” Parker said.
Local IBM employees who are moving to Lenovo will start moving on Wednesday into two buildings off of Davis Drive, encompassing about 500,000 square feet, that Lenovo has leased, Parker said. The buildings in RTP were once occupied by Sony Ericsson.
About 200 Lenovo employees connected to the server business, now known as the enterprise business group, moved into those buildings last week, Parker added.
In addition to workers, the buildings will house a lot of former IBM equipment previously used in its Triangle development labs.
“That’s a monumental task and one that is critical to our R&D element,” Parker said. “That will be important to our future.”
Lenovo said when the IBM deal was announced that it would boost Lenovo’s small-but-fast-growing server business by nearly tenfold.
Lenovo officials said Monday, however, that IBM’s server business has been eroding recently as its rivals capitalized on question marks surrounding the deal.
“The fear, uncertainty and doubt our competitors spread is gone,” Smith said. “We’re ready to attack and move forward.”