WSJ: IBM, Lenovo Trying To Address U.S. Security Concerns Over Server Deal

Technology giant International Business Machines Corp. (IBM) and Chinese PC maker Lenovo Group Ltd. (LNVGY, LNVGF) are trying to resolve U.S. security concerns over IBM's proposed $2.3 billion sale of its computer-servers business to Lenovo, the Wall Street Journal reported Wednesday.

According to the WSJ report, the U.S. government is said to be investigating security issues related to the sale of IBM's x86 servers that are used in communications networks of the U.S. and in data centers that support the Pentagon's computer networks.

The U.S. is said to have commenced a probe of the deal after it realized that the servers were used more extensively in sensitive areas than previously thought.

Meanwhile, Bloomberg reported earlier in June that IBM and Lenovo have sought more time for a U.S. national-security review of the deal. The companies reportedly resubmitted the transaction for review by an interagency panel called the Committee on Foreign Investment in the U.S., or CFIUS.

The extended review will give U.S. regulators more time to scrutinize the proposed transaction as tensions between the U.S. and China rose over spying and hacking claims. The CFIUS is a panel that screens deals with possible national-security implications.

According to the WSJ report, U.S. security officials are said to be worried that the servers could be accessed remotely by Chinese spies or hackers, or comprised through maintenance after the sale is completed. However, Lenovo and IBM say that the 86 servers are a low-end technology, and that majority of these servers are made in China and contain Chinese components.

To address U.S. security concerns, IBM will reportedly provide maintenance of the servers on Lenovo's behalf for an extended period after the sale. But members of the CFIUS are worried that after the maintenance falls back to Lenovo, the machines will be more vulnerable to being comprised by the Chinese agents.

Both IBM and Lenovo are said to be looking forward to a positive outcome of the deal despite the concerns. In 2005, Lenovo acquired IBM's PC business that included the ThinkPad line of PCs. Since then, the two companies have continued to collaborate in many areas.

IBM closed Wednesday's trading at $180.72, down $0.16 or 0.09 percent on a volume of 2.76 million shares. LNVGY closed trading at $26.88, up $0.53 or 2.00 percent on a volume of 33,007 shares.

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