Lenovo in talks to buy IBM's x86 server business

IBM is reportedly ready to offload its x86-based server business to Chinese firm Lenovo in what would be the second high-profile deal between the technology giants.

This portion of IBM's server business is estimated by Morgan Stanley to have generated $4.9 billion in the last year.

However, after reporting a 5 per cent drop in total revenue over the first quarter of 2013, IBM may look to continue distancing itself from the hardware business.

Lenovo has confirmed to the Hong Kong stock exchange that it is in preliminary negotiations with a "third party in connection with a potential acquisition."

Talks between IBM and Lenovo are said to be in the early stages, and any sale is likely to cost the Chinese firm billions of dollars.

If a deal is reached it will be the second one between the two firms.

Lenovo previously purchased IBM's ThinkPad division in 2005 for a total of $1.75 billion. This deal has worked out well for the Chinese firm which is seeing strong sales for its laptops and is competing with HP for the number one spot in the PC market.

Purchasing part of IBM's server division will help the Chinese firm to diversify its portfolio and create another stream of revenue.

IBM, meanwhile, is likely to plow any cash it receives from the deal into research and development, which has led to creations such as Watson.