With the planned acquisition of the IBM x86 server business, Lenovo is vaulting from the sixth largest x86 server provider behind Hewlett-Packard and Dell.
Setting the stage for a major assault on both HP and Dell, Lenovo will acquire the x86 server business of IBM for $2.3 billion. According to Peter Hortensius, Lenovo senior vice president and president of the Think Business Group, this acquisition accelerates a five-year plan Lenovo had in place to challenge Dell and HP in the x86 server space.
As part of the deal, Lenovo also plans to resell IBM storage products to complement its newly expanded x86 server lineup, including Storwize disk storage systems, tape storage systems, IBM General Parallel File System software, SmartCloud Entry offering, and elements of IBM’s system software portfolio, including Systems Director software and software IBM gained via its acquisition of Platform Computing solutions.
Via this deal, Lenovo is making it clear it intends to leverage its manufacturing muscle to not only compete in the lower end of the x86 server market, but the high end as well. In the last several years, IBM has looked to differentiate itself by building highly integrated platforms such as the Flex Series and the latest generation of x-Series servers, which includes systems that allow DIMMs and can used as a form for persistent storage that resembles Flash memory.
Despite those innovations, however, IBM’s x86 server revenue has steadily fallen in the face of both fierce pricing competition from Dell and HP and the rise of Cisco in the high end of the x86 server category.
The Lenovo deal with IBM is still subject to approval of several governments which, given the political climate surrounding spying these days, may raise some eyebrows as Lenovo is headquartered in China. But the vast majority of x86 servers are already manufactured in China so while there may be some concerns expressed, they are not expected to ultimately stand in the way of closing a deal that is expected to take nine months or more to fully complete, with some 7,500 IBM employees being given opportunities to go to work for Lenovo.
Once completed, Lenovo is expected to not only compete more aggressively across the server space, but also leverage its newfound dominance of the PC category to bundle servers with mobile and desktop PCs as part of a larger Lenovo PC Plus strategy. IBM, meanwhile, will continue to invest in Power Series servers and mainframes in addition to Linux and Windows server software for x86 server environments.
None of this, of course, will come as a surprise to Lenovo’s rivals. The only question is what percentage of IBM’s x86 server customers will opt to move to Lenovo and which customers, if any, Lenovo will be able to woo away from HP, Dell and others once it has a broader x86 server portfolio actually in place.