Lenovo enters the server business

Lenovo Group Ltd. announced its intent to jump into the server business by licensing x86 server technology from IBM, helping extend its product offerings to small and midsize businesses.

Under the agreement, Lenovo will manufacture one- and two-way x86 servers based on IBM's System x technology, which Lenovo will distribute under its own brand name.

The servers will add to Lenovo's corporate product lineup, which includes ThinkPad laptops and Think workstations. The company also distributes IdeaPad notebooks for the consumer market.

This will be a new business for Lenovo because the company does not sell servers outside China, said Ray Gorman, executive director of external communications at Lenovo. The vendor will start distributing the servers worldwide within the next year.

IBM will continue to distribute System x servers under its own brand name, said Tim Breuer, an IBM spokesman. IBM is not worried about competition from Lenovo, Breuer said, adding that the deal will in fact boost IBM's licensing and financing business.

Lenovo also has an excellent reach to companies with fewer than 500 employees, so the deal will be a natural extension of IBM's server distribution channel, Breuer said. It will give IBM a better reach to small and midsize business customers globally, he added.

The companies have been partners since Lenovo bought IBM's PC business in 2004 for $1.25 billion.

Lenovo will compete with Hewlett-Packard Co. and Dell Inc. in the global x86 server market, which grew at 9.5% in the third quarter of 2007, according to numbers from analyst firm Gartner Inc. HP was the top vendor, with a 30% market share, followed by Dell and IBM.

Copyright © 2008 IDG Communications, Inc.

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