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Lenovo bags IBM's server hardware business for record breaking $2.3 billion

Lenovo has shaken hands on a deal that will see it acquire IBM's x86 server hardware business for $2.3 billion (£1.3 billion).

It marks the largest ever tech acquisition by a Chinese company, with Lenovo set to pay $2.07 billion in cash and the rest with its own stock (a formidable amount considering the Beijing-based company is the world's largest PC maker).

The deal benefits both technology giants. IBM can now focus on a shift to more profitable software and services by dumping its low-margin x86 business. According to Reuters, the unit had reported seven straight quarters of declining revenue.

In the face of the shrinking PC market, meanwhile, Lenovo will now be able to remodel itself as a new heavyweight provider of mobile devices and data storage servers. It has already been diversifying its business by brunching into the development of smartphones, tablets and smart TVs, and this latest acquisition will provide a firm foothold into the enterprise hardware market.

The deal itself encompasses IBM's System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations. IBM will retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication and PureData appliances.

Trading in Lenovo shares ground to a halt on the Hong Kong stock exchange ahead of the transaction's announcement. Lenovo had confirmed earlier in the week that it was in discussion with an unnamed company about a possible acquisition, but details were scarce.

This isn't the first time that Lenovo has crossed IBM's palm with silver. In 2005, Lenovo bought IBM's personal computer for $1.25 billion (£753 million). At the time, it was one of the biggest foreign acquisitions ever carried out by a Chinese company.