Lenovo sees opportunity in SMB server sales
Chinese player still sees plenty of profit in tin, as Big Blue eyes SoftLayer technology as x86 replacement
IBM is getting out of x86 servers because it is a commodity business. And this is why Big Blue is shifting resources to its SoftLayer hosted infrastructure services.
Lenovo, on the other hand, believes there is ample opportunity for it and partners to continue selling and expanding SMB server market share.
"There's still a need in the back office to put a local server to support the SMB customer. We see a significant growth opportunity in the tower and rack business, and I don't see that going away anytime soon," said Chris Frey, vice president of North America Commercial Channels and SMB at Lenovo.
Lenovo is paying $2.3bn for IBM's x86 server unit, which includes System x, BladeCenter, Flex System blade servers and switches, NeXtScale, iDataPlex and associated software, blade networking and maintenance operations. It is also paying $2.9bn for Google's Motorola Mobility handset unit, expanding its global smartphone capacity.
In 2013, global server sales declined by six per cent, according to analyst firm IDC, following the general retreat by PCs. Yet Lenovo increased its PC market share to 18.5 per cent against second-placed HP, which has 18.6 per cent. And it is rapidly expanding its organic server sales.
When the IBM deal closes, Lenovo will be a top-five server vendor, joining HP, Dell, IBM, Oracle and Cisco in the top echelon. The expectation is for server sales to continue declining as more businesses - particularly SMB - shift their spending to managed cloud services.
IBM is unapologetic in its view on the strength of cloud computing. At its annual PartnerWorld conference last week, IBM asserted its belief that SoftLayer, the hosting company it acquired in 2013 for $1.2bn, is the right entry point for partners not currently engaged in cloud computing. And, IBM executives said, it is the replacement product for its x86 servers.
"Partners selling cloud services like SoftLayer will go relatively fast. It's not really different from x86 servers," said Marc Dupaquier, general manager of Global Business Partners at IBM.
IBM believes it will lose as many as 2,000 partners through the Lenovo server deal. However, it also believes that it can pick up hundreds of Lenovo partners who need and want a cloud alternative to server hardware sales.
Lenovo, on the other hand, is a company that seems to defy gravity.
In its earnings report released last week, Lenovo posted its first $10bn quarter and 19th consecutive quarter of growth, driven mostly by global PC sales and smartphone sales in Asia. Lenovo sales are so brisk that it shipped an average of five devices per second in the last three months of 2013.
Driving PC sales is a combination of price, partner compensation and, in particular, the end of life of Microsoft's Windows XP operating system. Lenovo earns about 70 per cent of its revenue through PC sales.
Frey sees product diversification taking hold in 2014 and mixing up Lenovo and partner revenue. Lenovo announced a reorganisation that takes effect on 1 April, in which the company will be divided into four units: PC; mobile; enterprise; and ecosystem-and-cloud groups. Each is essentially hardware-based, reinforcing Lenovo's belief that applications and services require hardware - or the "PC Plus" strategy.
"I don't see the partner community will see a change. Focusing on executing with speed and creativity will give us more speed as we'll be able to bring more products to the market. I don't see a significant difference for the channel community," Frey said.
Over the next 12 months, expect to see Lenovo place greater emphasis on its own server line as well as the acquired IBM products, its storage devices developed with EMC/Iomega, and Windows 7- and 8-based desktops and mobile computers.
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