Lenovo Expects to Close IBM Server Deal by Year-End

By Dow Jones Business News, 
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HONG KONG--Chinese personal-computer maker Lenovo Group Ltd. still expects to complete its acquisition of International Business Machines Corp.'s low-end server business by the end of this year, its chief executive said, even as the U.S. government is investigating possible national-security risks related to the deal.

"There is no change to the plan," said Lenovo Chief Executive Yang Yuanqing at a news conference after the company's annual shareholder meeting Wednesday.

Lenovo, which last year overtook Hewlett-Packard Co. as the world's largest PC maker, is trying to obtain regulatory approvals for two multi-billion-dollar acquisitions: a $2.3 billion deal to buy IBM's x86 low-end server unit and a $ 2.91 billion deal to buy Google Inc.'s Motorola Mobility. After announcing the two deals in January, Lenovo said it expected both deals to close by the end of this year.

Still, people familiar with the matter told The Wall Street Journal last month that U.S. security officials are looking into risks related to the IBM server deal, due to concerns that the servers, used by some parts of the U.S. government, could be accessed remotely by Chinese hackers.

"We are still confident that we can complete the two transactions by the end of this year," Mr. Yang said. "We are making very good progress in obtaining approvals for the deals."

Mr. Yang didn't comment on whether the U.S. government is raising any security concerns about the IBM server deal; he said he isn't in a position to share details of the company's discussions with regulators. But he rejected the view that Lenovo's products could raise security concerns. "If you look at our history, with domestic and overseas clients, there have never been any issues regarding security," he said.

The U.S. government has been looking into the possible national-security implications of Lenovo's proposed acquisition, in part because IBM's x86 servers are used in U.S. communication networks and in data centers that support the Pentagon's computer networks, according to people familiar with the matter.

Mr. Yang said U.S. federal and local governments as well as the U.S. military have been Lenovo clients and there haven't been any security problems.

If the deal's approval takes longer than expected, "it would be a negative," said Sanford C. Bernstein analyst Alberto Moel. Still, at this point, the assumption is that the companies and regulators will work out arrangements to close the deal, he said.

Lenovo faced similar security questions when it bought IBM's PC business in 2005. Although the PC acquisition was approved by regulators, some sensitive arms of the U.S. government have shied away from using Lenovo products.

Spencer Ante contributed to this article.

Write to Juro Osawa at juro.osawa@wsj.com

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