Last week, Lenovo and IBM received final approval for the acquisition of IBM’s x86 business and this should be a transformational step for that unit. The division will move from being the lowest-margin server provider at IBM to the highest-margin hardware provider at Lenovo. This acquisition should work like a Cinderella fairytale for the x86 division, because it will go from fighting for the scraps at IBM to having the greatest power at Lenovo. In addition, with all of the fighting in tech between the U.S. and China, the move will make x86 the only vendor in its class with leadership evenly balanced between the two countries. Let’s walk through other new advantages and problems.
As with any acquisition, there are typically several months when the two units can’t work closely together and have to define turf. During that time, it is difficult for them to defend their image. Lenovo is in that space at the moment. Competitors are weaving compelling stories about how the merger won’t work and creating a decision cloud with customers so they can sell their products more successfully. While this puts any acquiring company at a disadvantage, leadership knows that the competitors have less knowledge about the outcome than Lenovo or IBM’s x86 server units do. This will undoubtedly make both units more aggressive on pricing and benefits, because they know they have to overcome the fear, uncertainty and doubt (FUD) in order to move product. Also, whatever the issues are now, things will improve massively once the merger is complete and the two entities become one company.
In any case, the future of the x86 under Lenovo is now more certain than it was under IBM, so whatever concerns you had about it should be reduced even before the merger is complete. The FUD simply provides you with a better opportunity to cut a great deal as long as it continues.
But you have to have a sense of where this is all going. I’ve been through a number of acquisitions, and I know the folks on both sides of this deal. While I think it will take awhile to fully reconcile the two lines, right now the Lenovo server lines appear to perform best in the mid-market while the IBM lines do so in the large enterprise. I expect that is how the products will continue to be positioned. Now be aware, the Lenovo products can move up market when pushed, and the IBM products have performed well in the mid-market too. Lenovo isn’t going anyplace, but you’ll likely see better support alignment if you think of the lines this way. Typically, it takes around two years for a company to fully reconcile lines that overlap, but given past performance, this should be the logical break between the existing organizations.
One interesting part of this is that Lenovo will move from being a mid-tier Intel partner to being a top-tier, and the company historically got along better with Intel because it seemed more willing to fully embrace Intel’s initiatives and not try to “innovate” around them. Intel has one of the largest technology labs on the planet, and much of its effort is focused on the future of virtualized cloud-like workloads. This suggests that Lenovo should quickly move to enjoy an advantage because its new scale and already close working relationship with Intel should move it even closer to the company and allow it to more aggressively embrace the related technologies. This is handy, because Intel is big enough to drive strategic standards and its technology moves more easily across OEMs than OEM-centric efforts, which should turn Lenovo into the least risky strategic server partner over time.
One interesting aspect of this acquisition by Lenovo is that both EMC and IBM think of it as far more strategic now. Both companies appear to be competing with each other as to which can be the best partner. This gives Lenovo access to both companies’ rather extensive storage portfolios for tight integration. As these relationships mature and as you flip between EMC and IBM solutions—depending on which is best at the time—Lenovo should become the constant that allows you to reduce your interoperability risk because Lenovo, unlike any other server vendor, will integrate very well with both vendors’ solutions, turning them into the equivalent of a storage Switzerland. This will turn into a nice advantage for you because it preserves your choices and ability to competitively bid.
Lenovo is undergoing two mergers at the moment: Motorola and IBM. But, of the two, the IBM one is by far the easiest. Given the fact that Lenovo successfully acquired the IBM PC business and changed it from market laggard to market leader, the positive outcome is near certain. However, there is an opportunity for competitors to use FUD while the merger is going through the approval process, and this gives you (the customer) an opportunity to get a deal on solutions that will only get better over time. Particularly interesting is the tightening of Lenovo’s relationship with Intel and its ability to work with EMC and IBM equally as both attempt to turn Lenovo into a more exclusive asset. In short, there is far less risk than you likely are hearing from analysts and far more opportunity as well, which, for the smart IT organization, creates some unique strategic advantages in dealing with the company right now.
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+