January 23, 2014
Wow, wake up and it’s a whole new world – a central concept of many contemplative belief systems and a daily reality on the computer industry. I woke up this morning to a pleseant New England day with low single-digit temperatures under a brilliant blue sky, and lo and behold, by the time I got to work, along came the news that Lenovo had acquired IBM’s x86 server business, essentially lock, stock and barrel. For IBM the deal is compelling, given that it has decided to move away from the volume hardware manufacturing business, giving them a long-term source for its needed hardware components, much as they did with PCs and other volume hardware in the past. Lenovo gains a world-class server product line for its existing channel organization that vastly expands its enterprise reach, along with about 7,500 engineering, sales and marketing employees who understand the enterprise server business.
The rumors have been circulating for about a year, but the reality is still pretty impressive – for $2.3 Billion in cash and stock, Lenovo acquired all x86 systems line, including the entire rack and blade line, Flex System, blade networking, and the newer NeXtScale and iDataPlex. In addition, Lenovo will have licensed access to many of the surrounding software and hardware components, including SmartCLoud Entry, Storewize, Director, Platform computing, GPFS, etc.
IBM will purchase hardware on an OEM basis to continue to deliver value-added integrated systems such as Pure Application and Pure Data systems.
What IBM Keeps
IBM will keep its mainframe, Power Systems including its Flex System Power systems, and its storage business, and will both retain and expand its service and integration business, as well as provide support for the new Lenovo server offerings.
What Does it Mean for IBM Customers?
For the most part, this will be a nearly invisible and non-disruptive transition for the vast majority of NA and EMEA IBM server customers. My expectation is that both companies will quickly approve this transaction and the continuity of IBM management and field organization will ensure an orderly customer-facing execution. Lenovo customers worldwide get a major expansion of potential options.
Life just got tougher, especially in China and other emerging markets. Lenovo has an efficient supply chain and a deep channel organization with excellent SMB reach. This deal now gives them a world-class server product line that suddenly jumps them to a parity or superior position to Huawei in China, and gives them local supplier status versus Dell and HP along with a competitive product lineup.
In developed markets such as NA and EMEA and the more developed APAC markets, there should be minimal change in competitive positioning. The vendor most insulated from competitive impact will be Cisco, whose success has been more influenced by its unique architecture and less dependent on deep supply chain and breadth of product line than its major competitors. By a thin margin, the vendor with the most to lose on a global basis is probably Dell, which is faced with a new competitor who combines its ability to address SMB markets with outside of NA with the enterprise portfolio of IBM.
· This is a big deal from the supply side, but not so big a deal for server consumers as it might seem at first, especially in developed markets.
· Competition will remain fierce, with no tendency for oligopolistic behavior among the remaining participants.
· Overall server market volumes will not change as a result of this acquisition.
· No changes in plans needed for current IBM customers.
· Current volume customers of HP and Dell should look forward to gaining another viable competitive option for future low-end server procurements.