Lenovo is to enter the server business by licensing x86 server technology from IBM. Under the agreement, Lenovo will manufacture one- and two-way x86 servers based on IBM's System x technology, under its own brand name.

This will be a new business for Lenovo, as the company does not sell servers outside China, said Ray Gorman, executive director of external communications at Lenovo. Lenovo will start distributing the servers, which are aimed at small and mid-sized businesses, worldwide within the next year.

IBM will continue to distribute System x servers under its own brand name, said Tim Breuer, an IBM spokesman. IBM was not worried about competition from Lenovo, Breuer said, adding that the deal would in fact boost IBM's licensing and financing business.

Lenovo also has an excellent reach to companies with fewer than 500 employees, so the deal will be a natural extension of IBM's server distribution channel, Breuer said. It will give IBM a better reach to SMB customers globally, Breuer said.

The companies have been partners since Lenovo bought IBM's PC business in 2004 for US$1.25 billion.