Lenovo shares rise on reports of IBM deal

Lenovo has diversified into products such as smartphones and tablets

Shares in China's Lenovo - the world's biggest PC maker - have risen after reports that it is in talks to buy IBM's low-end server business.

Its shares rose 3.5% to HK$10.54 on the Hong Kong Stock Exchange.

PC makers have been hurt by a slowdown in demand for desktop computers and a potential deal is expected to open new avenues of growth for Lenovo.

Lenovo confirmed it was negotiating a "potential acquisition", but did not disclose which firm it was talking to.

However, in a statement to the Hong Kong Stock Exchange it added that "no material terms" had been agreed upon and the company had "not entered into any definitive agreement in relation to the potential acquisition".

Diversifying business

Lenovo previously bought IBM's loss-making PC unit in 2005.

It has since turned the business into a profitable one and the company overtook Hewlett-Packard as the world's top PC maker in 2012.

Some analysts said that investors were betting the firm would be able to repeat that success with IBM's low-end server division as well.

Various media reports last year had claimed that the two firms were in advanced discussions about a potential deal involving the server division.

However, the deal was reportedly dropped at that time due to differences over the valuation of the unit.

Lenovo has already diversified its operations by expanding into smartphones and tablets.

Its combined shipments of smartphones and tablets have now surpassed those of PCs for two quarters in a row.

"The diversification is definitely helping them sustain their growth at a time when PC sales have been slowing," Avinash Kalyana Sundaram, an analyst with research firm IDC told the BBC.

"Any potential deal with IBM is obviously another push towards their aim of expanding their product portfolio."