In January, Lenovo announced it was acquiring IBM’s low-end server business for $2.3 billion. Given IBM’s low-end server’s annual revenue of around $4.5 billion, it’s clear that this sector isn’t dying yet, as agencies dealing with sensitive information, such as the Pentagon, the FBI and the US’ biggest telecommunications companies, still buy these IBM servers.

Lenovo now has to convince the US government that the acquisition will not allow the Chinese government back-door access to the US’ secrets and infrastructure.

Lenovo aims to complete the deal by the fall of this year, but in order to push forward, the Committee on Foreign Investment in the U.S., which investigates the national-security risks associated with foreign acquisitions of domestic companies, needs to give its approval.

“It’s kind of the perfect storm of issues,” said Anne Salladin, a former Treasury Department official who worked on CFIUS reviews and is now at Stroock & Stroock & Lavan LLP in Washington.

“Any foreign acquirer with this kind of asset purchase is very likely to be something that CFIUS would want to take a look at.”

Lenovo is said to be in talks with government officials in an attempt to alleviate their concerns about security. The Beijing-based company claims that there’s nothing to worry about since IBM will continue maintenance on the equipment for five years after the acquisition has been approved, and IBM’s oversight of the servers can be extended for a longer period.

Investigation of the deal will include scrutiny of how the servers are used in critical infrastructure, such as chemical plants and electric-utility companies.

“Exfiltration and infiltration are the issues,” Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, said.

“Can they get access to servers in some way and take data out or can they infiltrate the system to put in trap doors, viruses, malware or be able to take down systems in a potential conflict situation?”

If the deal doesn’t get approval, Lenovo will have to pay a break up fee of about $200 million to IBM.

Cause for concern?

Lenovo is one of China’s most internationally renowned enterprises. It’s not some no-name Chinese company trying to make a name for itself – rather, it’s already proven that it can turn a dying PC business into something consumers would want, and in the process, become the world’s top seller of computers, dethroning HP.

Wikibon CEO Dave Vellante made a valid point as to why the government is wary of the Chinese company:

“This should be a wake up call for American business leaders and politicians in Washington,” Vellante warned, pertaining to Lenovo’s back-to-back acquisitions of IBM’s server business and Motorola.

“Lenovo is a great example of a China success story where governments are aligning with businesses to compete globally.”

This isn’t the first time Lenovo has faced scrutiny over security. Last year, the Australian Financial review revealed that “Five Eyes“, a group that oversees the intelligence agencies of the US, Australia, Britain, Canada and New Zealand, implemented a policy that bans the use of Lenovo computers in their secure networks. The company was said to be have been blacklisted in 2005 shortly after it acquired IBM’s PC business. Government agencies are now using Dell and HP computers to handle sensitive information. Though some government agencies in the US, New Zealand and Australia still use Lenovo computers, these are only used on “unclassified” networks.

More recently, when BlackBerry announced that the company was up for sale, Lenovo was one of the main bidders looking to acquire it.  According to reports, Lenovo was close to buying the company, only for the Canadian firm to announce it wasn’t selling itself after all, instead hiring a new CEO and revamping its strategy.

So what happened? Turns out, the Canadian government blocked Lenovo’s acquisition efforts, warning BlackBerry that the deal would pose a great threat to its national security.

photo credits: Thomas Hawk via photopin cc; Cory M. Grenier via photopin cc