Lenovo sets sights on server expansion

PUBLISHED : Saturday, 25 May, 2013, 12:00am
UPDATED : Saturday, 25 May, 2013, 4:40am

Computer giant Lenovo is not waiting for an acquisition to become a major player in enterprise servers within three years.

Wong Wai-ming, the group's chief financial officer, said yesterday the firm was "on track" to achieve its goal through its partnership with EMC, the US-based storage and cloud computing giant.

"The enterprise server market is a strategic area for us to develop," Wong said, adding that EMC was helping Lenovo develop its ability to build so-called x86-standard servers. He said EMC would be the "anchor customer" for the servers.

Lenovo, the world's second-biggest personal computer supplier, has remained silent on reports it was negotiating to buy part of the server business of International Business Machines.

Sources have said talks between Lenovo and IBM hit an impasse when the two sides failed to agree on the valuation of the business, which some reports speculated to be around US$5 billion.

The proposed deal covered the IBM division that makes and sells commodity x86-standard servers, which are the low-cost, general-purpose corporate computers used to run business applications and which serve as the basic hardware inside large storage systems, as well as in data centres.

We should not plan our growth based on the opportunity to make an acquisition

"I think we should not plan our growth based on the opportunity to make an acquisition," Wong said. There was "no limit" to Lenovo's budget for acquisitions, but Wong said the firm considered those of "reasonable value".

Alberto Moel, a senior analyst at Bernstein Research, said Lenovo, which had cash reserves of US$3.4 billion at the end of March, was "not willing to overpay even if the asset would be good for revenue and margins". He estimated IBM's x86 server business had US$4.7 billion in annual revenue.

Technology research firm IDC forecasts global x86 server spending to reach US$39.5 billion this year, up from US$38.2 billion last year.

"Lenovo's share of the worldwide x86 server market was 1 per cent in revenue terms last year," said Rajnish Arora, the associate vice-president for enterprise computing research at IDC.

Lenovo, which posted record-high revenue of US$34 billion in the financial year ended March 31, expects its first x86 servers of its alliance with EMC to be ready in two years.

"Unlike smartphones, we need a longer lead time for [x86-standard servers]," Wong said.

The market's top-three players are Hewlett-Packard, Dell and IBM. Lenovo shares rose 3.79 per cent yesterday to close at HK$7.66, its highest close in nearly eight weeks.