IBM and Lenovo face scrutiny over IBM computer server deal

Servers

by CBR Staff Writer| 26 June 2014

National security concerns cloud the largest Chinese tech acquisition deal

IBM and Lenovo are facing scrutiny from the US government over IBM's proposed $2.3bn sale of its computer-servers business to the Chinese company.

The proposed acquisition is expected to be the largest ever by a Chinese company in the US tech space, according to Dealogic.

Both the companies are currently engaged in talks to resolve the issue as the deal, which was agreed in January still remains in cold storage as it has potential national security implications according to the government authorities.

IBM's x86 servers are used in the communications networks and in data centers that support the Pentagon's computer networks in the US, and officials are worried over their unauthorised remote access by Chinese spies or hackers, as per people familiar with the matter. Concerns also abound over the compromise of servers through maintenance.

But Lenovo has brushed aside these concerns, saying that IBM will continue to provide maintenance on Lenovo's behalf "for an extended period" after the sale.

Officials are also worried that the IBM servers could be used by the Chinese to create a clustered computer network to perform like a single powerful computer, according to Reuters.

Lenovo and IBM say that majority of the components in x86 and other servers are made in China and contain Chinese components. Lenovo also assures the reliability of its products and says that they are secure.

But the authorities, it seems, are not biting the bullet.

There were similar issues relating to a deal signed between Lenovo and IBM in 2005 related to the latter's PC business. Though the deal was later approved by the members of the Committee on Foreign Investment, the US military later alerted Defense Department officials to security incidents involving the PCs and the State Department banned their use on its classified networks within the country and abroad.

Till now, certain sensitive arms of the US government are reluctant to use Lenovo's technology.

IBM and Lenovo have meanwhile refiled their application for approval of the deal last month, reports Bloomberg News.

Although Lenovo officials say the deal remains on track to close by year-end, a potential result could be that US government could stop buying IBM x86 servers, said one of the people familiar with the matter.

The deal comes in the wake of escalating tensions between both countries. While US has criticised China for its alleged involvement in computer attacks against American companies and the federal government, Chinese aren't very happy about the American spying operation designs revealed by the NSA whistleblower Edward Snowden.

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