Lenovo Deal for IBM's Servers Getting Close U.S. Scrutiny

Government officials reportedly are worried that buying servers from a Chinese company may endanger national security.

Lenovo's plan to buy IBM's x86 server business reportedly is under close scrutiny by various U.S. government agencies that are concerned about security.
As with U.S. lawmakers' well-documented worries about Huawei Technologies, the issue regarding Lenovo centers around distrust of the Chinese government and tech vendors from that country, such as Lenovo, according to a recent report from Bloomberg.
Agencies like the Pentagon and the FBI, as well as the largest telecommunications companies—including AT&T and Verizon Wireless—in the United States, all buy x86 servers from IBM, according to sources and an analysis by Bloomberg Industries. U.S. government officials are worried that buying the servers from Lenovo will endanger national security by giving the Chinese government secret backdoor access to U.S. information and networks.
Lenovo officials announced in January that the company was buying IBM's low-end server business for $2.3 billion, a move that would make the Chinese company—now the world's largest PC maker, thanks to its $1.25 billion acquisition of IBM's PC business in 2005—the third-largest server vendor. The deal would include IBM's x86 System X, BladeCenter and Flex System blade servers and switches, as well as the Flex integrated systems, NeXtScale and iDataPlex servers and software, Enterprise X-Architecture technologies, and blade networking and maintenance operations.

The deal for IBM's server business—as well as Lenovo's $2.9 billion plan to buy Motorola Mobility from Google—are part of Lenovo's larger PC Plus initiative to become a dominant player in computing areas beyond PCs.

Lenovo and IBM hope to close the server deal sometime in the fall.
Before that happens, the Committee on Foreign Investment in the United States (UCFIUS)—a governmental interagency group that reviews the acquisition of domestic companies by foreign entities for national security purposes—will have to give its approval to the deal. According to the Bloomberg report, Lenovo executives have been talking with government officials to assuage their fears, noting that in accordance with the deal, IBM will continue to maintain the equipment for at least five years. That means Lenovo won't have complete access to the servers.
U.S. concerns about Lenovo and its deal with IBM echo those regarding Huawei, a massive Chinese tech vendor with a global reach in such areas as networking, data center systems and mobile devices. Huawei officials in recent years have been making a push to extend its reach in regions outside of China, including the United States.
U.S. officials and lawmakers have pushed back at the idea of Huawei networking equipment being used in government infrastructures or in those of telecoms in the country. A congressional report in October 2012 reiterated those concerns and cautioned U.S. telecoms about buying equipment from Huawei and ZTE, another Chinese-based tech vendor.
Officials with both Huawei and ZTE have denied that their equipment poses a national security risk in the United States. The issue arose again last month after reports in TheNew York Times and elsewhere, based on information from former U.S. National Security Agency analyst Eric Snowden, found that the NSA hacked into Huawei's servers at its Shenzen, China, headquarters.
Despite the issues with the U.S. government, Huawei executives said the company continues to see business grow, with global revenues last year increasing 8.6 percent over 2012, and its enterprise business sales growing 32 percent. In addition, 65 percent of Huawei's revenues in 2013 came from markets outside of China, and sales in the United States jumped 14.2 percent.