Home » Enterprise IT » Why Would IBM Sell Off Its X86 Server Business?

Why Would IBM Sell Off Its X86 Server Business?

The Wall Street Journal reports that IBM is in advanced talks to sell of its X86 server business, which generates about $4,5 billion a year, to China-based Lenovo. IBM sold its PC business to Lenovo in 2005.

X86 servers are the Intel Xeon or AMD Opteron workhorses of almost every data center. Even shops with massive investments in IBM Z series mainframes or Power-based servers surround the back-end with X86 server racks handling Internet loads, or many other diverse workloads. Moreover, X86 workloads are expanding while proprietary (aka “rest of IBM”) hardware is declining in the total server market.

I’m throwing my hands in the air. I can see no strategic benefit coming to IBM from divesting X86 servers. True, margins on X86 servers are slim and getting slimmer due to Open Compute-like initiatives that are commoditizing X86 hardware and everything in the racks. IBM has shown in the past (i.e., PC business) that it will exit businesses that do not generate adequate operating margin.

IBM’s strategy for the past decade has been to surround hardware sales with IBM software (very high margins) and services (pretty good margins). Importantly, IBM is one of the few companies in the world where you can big a complex but problematic business process and say “Can you fix this for me, IBM?” The solution typically involves IBM hardware, software, and implementation services following on to IBM transformation services. IBM does transformation exceedingly well.

So, I ponder, if IBM no longer has X86 servers as an ingredient to its transformation engagements, is the company reducing its effective engagement footprint, perhaps sharply? I doubt IBM’s customers will be quite as excited if the message becomes “no X86 solutions from us any more”.

Alternatively, IBM could be setting up Lenovo and other preferred partners for transactional X86 sales to IBM transformation customers, with IBM taking a fee and no longer having to bother with pesky X86 R&D, break fix, inventory, training, and other costs.

This deal could definitely happen, which is why I am writing about it. The question to ask if it goes down is “how are IBM customers now going to get X86 servers?”

Follow me on Twitter @peterskastner

IBM X-series

IBM X-series


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