IBM deal will catapult Lenovo onto EMEA server podium

IDC warns partners not to make any rushed moves due to concerns over US regulators

Lenovo's acquisition of IBM's low-end server business will transform it into a top three server player in EMEA and help build its brand recognition, according to IDC.

According to the market watcher, the Chinese vendor currently has less than one per cent of the EMEA x86 server market in both units and revenues, while IBM is in third place on 13 per cent behind only HP and Dell.

IDC said the deal, announced this morning, will catapult Lenovo onto the podium, as well as providing stronger competition to Dell and HP in the SMB space, where IBM has been less aggressive in the past.

"IDC believes that in EMEA, even more than the technology IP, in a single shot the deal will help Lenovo acquire customer base, skilled salesforce, channel relationships, and brand recognition," said Giorgio Nebuloni, research manager, servers, at IDC Europe.

The $2.3bn transaction has been welcomed by partners and Nebuloni said the channel should use it as a window to assess their long-term strategy towards infrastructure consumption, whether that be on-, or off-premise or managed.

"However, as the buyout is far from complete and in particular US regulators could pose hurdles, IDC advises against any rushed moves in any direction," Nebuloni said.

IBM got less than half for the unit than it hoped for, but Nebuloni said he could see the logic of the deal for both parties.

"Firstly, IBM has not been able to build the scale in the x86 business that would make it a market leading contender," he said. "Additionally, as confirmed in recent statements of intention, and with SoftLayer's acquisition last year, IBM believes it can and should address most of the infrastructure needs of its customers with IaaS cloud services, competing with vendors like Rackspace, Amazon Web Service and Microsoft."

While x86 margins are in the 15-25 per cent range, the higher-end servers IBM has held onto command margins of 40-50 per cent and software margins of 70 per cent or more, Nebuloni estimated.

"Even IaaS services itself - despite the widespread assumption of low profitability - might be more profitable for IBM," he said.

"On paper, the deal fits with the broader strategy of both vendors, Lenovo on its path to diversify from the core PC business and into richer product areas and IBM on its move to become a cloud provider first," he said.

"The interesting bit will be related to how the companies will manage the transition for the richer x86 blade environments, which in some areas have replaced legacy UNIX platforms as the building block for core enterprise applications. IBM will retain only the Power-based portion of blade environments, yet this will require a long-term joint work with Lenovo in several customers currently using both x86 blades and Power or System z mainframe environments or even storage blocks, which IBM will keep in its portfolio. We don't know the details of this switch, and as they say, the devil is in the detail."