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Lenovo Deal for IBM x86 Servers Gets OK From China

By Jeffrey Burt (Send Email)
Posted July 8, 2014


Lenovo's $2.3 billion deal to buy IBM's x86 server business, which already is getting close scrutiny from U.S. regulators, got a boost when the Chinese government gave its approval to the acquisition.

The Chinese Ministry of Commerce, an anti-monopoly agency within the government, gave its approval to the deal July 4, just two days after Lenovo CEO Yang Yuanging said he was confident the PC maker will close both the IBM deal as well as its $2.9 billion acquisition of Motorola Mobility from Google.

The approval from the Chinese government, while not a surprise given Lenovo's high status within the country's IT industry, is a good step forward for a deal that is seeing some skepticism in the United States over national security concerns.

The deal would propel Lenovo into the No. 3 spot in the global server market, behind Hewlett-Packard and Dell. Officials with Lenovo, the world's top PC vendor, hope the deal will do for it in servers what its 2005 acquisition of IBM's PC business did for it in that industry. It also would enable IBM to shed a low-margin business and focus more of its time and money on such areas as software and services, as well as its Watson and Power server businesses.

However, the deal is undergoing a close review by the Committee on Foreign Investments, a U.S. governmental interagency group that reviews for national security purposes the acquisitions of domestic companies by foreign entities. The group's approval is necessary before such a deal is closed.

U.S. lawmakers are concerned that technologies from Chinese-based vendors like Huawei Technologies and ZTE in government systems could harbor back doors that would allow Chinese officials access to U.S. networks and sensitive data.

Worries over cyber-espionage and hacking have become a significant part of U.S.-Chinese relations, with the United States pointing to China as a significant source of online attacks, going so far as indicting five Chinese military officers in May for hacking American companies.

The Chinese government has responded to those actions and allegations of the U.S. National Security Agency using American tech products to spy on other countries by reviewing tech companies with operations in the country and ordering state-owned companies to stop doing business with U.S. consulting firms. In addition, Chinese officials have targeted such major U.S. tech companies as Cisco Systems, IBM and Microsoft, banned Windows 8 from government computers, and asked banks to remove IBM servers and replace them with systems built by Chinese companies.

Competitors like Dell and HP also have been aggressive in pursuing IBM's x86 server customers in hopes that the transition of the business to Lenovo will unnerve enough of them to switch vendors. IBM this spring pushed back against those efforts with a Web site dedicated to the deal that is designed to allay customer worries about the Lenovo deal.

Despite the hurdles, Lenovo CEO Yang said earlier this month that the PC maker was on track to complete both the IBM and Motorola deal—which would give Lenovo a stronger handset business—by the end of 2014.

"There is no change to the plan," Yang said during a press conference July 2 in Hong Kong. "We are still confident that we can complete the two transactions by the end of this year. We are making very good progress in obtaining approvals for the deals."

 

Originally published on eWeek.
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