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Lenovo to Acquire IBM x86 Server Business – A Market Shift with Positive Expectations

Written By Phil Turner, Director, Enterprise Solutions, Datatrend Technologies, Inc.

On January 23, IBM and Lenovo officially announced an agreement whereby Lenovo is to acquire IBM’s System x (x86 ) server business, formalizing a move that had been unofficially rumored in 2013. Under the proposed agreement, Lenovo will acquire IBM’s entire x86 server business intact, including the executive team, development team, sales team, engineers and all the people that drive the x86 business (approximately 7500 employees), in addition to the associated brands and product roadmaps. Additionally Lenovo will have the ability to sell certain IBM software and advanced storage products to round out their server offerings.

Datatrend Perspective: Look for Better Market Solutions and Competitiveness

For enterprise customers and partners of Datatrend, this is great news as it puts the unparalleled IBM product innovation into an organization equipped with a proven and dominant x86 business model (Lenovo is the #1 PC supplier globally, after acquiring and growing that PC business from IBM in 2005). We expect continued product innovation, better supply chain efficiency and improved business economics and nimbleness once the x86 server business acquisition is complete.

This combination of industry-leading products and a highly successful business model focused on this x86 market space positions the IBM System x and Flex System product lines for great success. More importantly, we view this as an opportunity to provide even better solutions and service to our customers.

Here at Datatrend Technologies, we have been working with IBM for over 27 years. In that time we have grown to serve as a top 10 value-added reseller (VAR) and integrator of several IBM server and storage product lines, including IBM System x, PureFlex and Flex System, which are the “x86” Intel® processor based server line being sold to Lenovo. IBM will retain its Power Systems server line, which uses IBM’s proprietary Power™ microprocessors, in IBM’s server portfolio.

Datatrend, being the largest provider of IBM’s modular blade products and Flex systems, is looking forward to the smooth transition, improved operations and new opportunities this transition will provide for us and our customers.

Lenovo IBM x86 product line acquisition complemented by OEM and resale agreementDatatrend is happy to share news, updates and perspective on the IBM x86 server business transition to Lenovo. We shared a dedicated Optimize IT blog post on the IBM-Lenovo deal, following from our participation in the 2014 IBM PartnerWorld Leadership Conference (PWLC). And, we will be maintaining an information hub on the IBM and Lenovo enterprise server business on the Datatrend web site, offering a central location for news around the Lenovo acquisition of IBM System x server business.

Lenovo Launches Deeper into the Enterprise Server Market, Expanding on PC and Smartphone Market Leadership

Lenovo is the #1 supplier of computers (and #4 in smartphones) globally, holding the market leader position with over 40% market share for PCs in enterprise accounts, and 18%+ overall PC market share, ahead of HP and Dell.

To date, Lenovo’s enterprise servers have established approximately 1% share in the enterprise server market. The proposed acquisition of the IBM x86 server business, representing about 12.9% market share under the IBM brands, brings Lenovo immediately to the #3 spot for enterprise server market share, globally. The expansion for Lenovo comes with a robust ecosystem of resources, including the entire IBM x86 employee base of approximately 7500, plus the established IBM System x partner network that has been consulting and delivering solutions with leading enterprise accounts for decades.

Expect a Strengthened Market Position for the IBM x86 Server Business with Lenovo – Precedence Set with Success Sparked by the 2005 Acquisition of IBM’s PC business

Lenovo mergers and acquisitions history chart with planned IBM x86 and Motorola Mobility transactionsLenovo is a $34 billion global technology company with 46,000 people and customers in 160+ countries, bringing extensive global resources focused on the x86 market. And, Lenovo has demonstrated expertise integrating businesses it acquires.

Lenovo and IBM have a strong performance history together. In 2005, Lenovo acquired the PC and laptop business from IBM, including the popular IBM ThinkPad brand. Since that transition, Lenovo has successfully developed the business to be increasingly competitive, growing from 6% market share to 18% between 2005 and 2012. Lenovo has also demonstrated continuous development and its optimized supply chain, leading with innovations like the Horizon tabletop PC and the Yoga Tablet. Recently, Lenovo has migrated to the leading, upper right position of Gartner’s Magic Quadrant for PCs, with comments of “near flawless execution… Lenovo produces well-designed systems at competitive prices.”

Building on top of the PC business success, Lenovo and IBM in 2008 established a server partnership. For the 2014 IBM x86 server business acquisition, Lenovo has committed to carry forward current products and roadmaps, with the same product portfolios and brands, yet with added choice and innovation, building on the Lenovo ThinkServer and storage portfolio and furthering Lenovo’s “PC Plus” strategy. The acquired x86 R&D team will bolster Lenovo’s ability to innovate for the enterprise market.

With its “PC Plus” strategy, Lenovo is investing in solutions across the hardware and devices spectrum (including servers, tablets, smartphones and smart TVs), toward the vision of being a top 5 global technology company. In fact, less than one week after announcing plans to acquire IBM’s x86 server business on January 23rd, 2014, Lenovo announced the planned acquisition of Motorola Mobility business assets from Google on January 29th, 2014. Even prior to this acquisition, Lenovo has grown its mobile market share significantly; and, in its first 2014 fiscal quarter (ending June 30th, 2013) Lenovo tablet and smart phone shipments surpassed PCs for the first time.

What Lenovo will acquire with the IBM x86 Server Business and What IBM Retains/Maintains

Under the agreement, Lenovo plans to acquire IBM’s System x, BladeCenter and Flex System blade servers and switches, x86-based Flex Systems, NeXtScale and iDataPlex servers and associated software, networking and maintenance operations.

IBM will retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication and PureData appliances.

IBM is continuing to invest in PureSystems as an accelerator to Big Data, Cloud and Systems of Engagement. While x86-based Flex System and PureFlex will be available through Lenovo, the Power/Hybrid versions of Flex System and PureFlex will be available through IBM, in addition to PureApplication and PureData.

Lenovo and IBM plan to enter into a strategic relationship which will include a global OEM and reseller agreement for sales of IBM’s industry-leading entry and midrange Storwize disk storage systems, tape storage systems, General Parallel File System software, SmartCloud Entry offering, and elements of IBM’s system software portfolio, including Systems Director and Platform Symphony.

According to Lenovo’s Web site and the Lenovo-IBM x86 Acquisition Overview, the deal will include the following:

  • Maintain global warranty service and support offerings after closing
  • Business includes products, sales force, manufacturing, research and development
  • Storage agreement assures continuity of solutions that include IBM Storwize
  • Existing sales, distribution and maintenance contracts will transfer seamlessly
  • Global warranty service and support offerings will remain intact after closing

While the transaction is being completed (projected to be 6-9 months from announcement date, so July-September 2014), both companies expect no change in their independent, existing server operations, including customer service and product availability. Following the closing of the transaction, Lenovo will assume related customer service and maintenance operations, and IBM will continue to provide maintenance delivery on Lenovo’s behalf for an extended period of time.

After the deal closes, IBM will continue to provide maintenance delivery on Lenovo’s behalf for an extended period pursuant to the terms of a five-year maintenance service agreement with IBM. Customers will not see a change in their maintenance support.

IBM Focuses on Cloud, Analytics and Cognitive Computing

IBM seeks to be the leading platform provider for Cloud and Big Data, with a commitment to enterprise systems and storage.

According to IDC, “IBM first announced that it was investing over $1 billion in its new cognitive computing unit titled the Watson Group. The Watson technology offers dramatic potential for vertical solutions to be built using cognitive compute capabilities and big data resources.”

The IBM Softlayer acquisition and the corresponding cloud services enabled from Softlayer infrastructure as a service (IaaS) and prospective platform as a service (PaaS) – think IBM Watson hosted – will further shift the IBM solution portfolio toward agility.

IBM continues to evolve solutions combining software, services and enabling infrastructure (Power, Pure, Storage, etc), toward major market drivers in cloud, mobility, big data analytics and security.

And, while the x86 server business will transition to Lenovo, IBM is still investing $1 billion in x86 innovation, reinforcing that it’s solutions will continue to be developed to support the x86 market.

Lenovo to Buy the x86 Business Intact – 7,500 Employees to Transition to Lenovo

Approximately 7,500 employees in more than 60 countries will reportedly move to Lenovo, with about 2,000 located in the Research Triangle Park (RTP) area of Raleigh, North Carolina, where IBM is the largest employer. This move doubles Lenovo’s presence in RTP.

Lenovo maintains two global headquarters, located in North Carolina and Beijing. The company operates major research centers in the U.S., Japan and China, plus manufacturing plants in North Carolina, Mexico, India, China and Brazil.

Both IBM and Lenovo maintain major U.S. presence in North Carolina. Lenovo will maintain U.S.-based Global Executive Headquarters (HQ) in Morrisville, North Carolina, with approximately 2,000 x86 employees in the Raleigh, NC, area of Research Triangle Park (RTP). Lenovo also operates it’s U.S. Fulfillment Center in Whitsett, NC. While IBM is headquartered in Armonk, New York, the company maintains a large presence with a data center and employees in Raleigh, NC.

According to the Lenovo in the United States factsheet, Lenovo is a trusted partner active in the U.S. business ecosystem:

  • With American executive leadership of its U.S. operations, Lenovo supplies innovative and reliable IT equipment to millions of American consumers and students, and to virtually every Fortune 100 company
  • Lenovo works hand in hand with blue chip U.S. companies like IBM, Google, Intel, Microsoft, Qualcomm and Seagate as major suppliers and partners
  • Lenovo is a known and trusted company that has been through three successful CFIUS reviews in the last decade, two of them in 2012
  • These previous successes demonstrate that transparent, well-managed companies have been welcomed into the U.S. technology industry
  • As a GSA schedule holder, Lenovo is a known and trusted TAA compliant supplier

Datatrend Technologies will serve as a Lead Partner for Both IBM and Lenovo

Datatrend Technologies has maintained a strong key partner role with IBM, dating back to the company’s origin in 1987. In addition to winning the 2013 IBM Beacon Award for Best System x Solution Globally, as well as 2013 IBM Channel Growth Award and 2013 IBM Top Performing Business Partner in the East IMT, Datatrend is a Premier-level (the highest) IBM Business Partner, with the Specialty Elite designation (the highest) in IBM solutions areas of Storage Systems, Pure Flex and Flex Systems, Power Systems and System x. Datatrend will continue to grow the IBM relationship with converged and integrated systems of storage, Power and PureSystems, along with other evolving solutions in the IBM portfolio to support trending market demand for Cloud, Mobility, Security and Big Data Analytics. At the same time, Datatrend is establishing a stronger Lenovo partnership for enterprise computing solutions – working with the same team members who have led the System x business under IBM.

Datatrend is one of IBM’s top Industry Solution Integrators, providing the IBM infrastructure to support Independent Software Vendors (ISV) and Managed Service Providers (MSP) solutions, often in the form of a fully integrated “appliance” built on x86 servers (such as IBM Flex Systems, IBM System x). We are confident this program will continue to be supported, and even enhanced, when Lenovo takes over the product lines. Datatrend helped pilot this program for IBM, and we are developing tight relationships with the Lenovo organization as well to ensure that there will be no gaps in the ability to support our ISR partners.

We are excited for the positive implications this will have for IBM and Lenovo, as well as our shared partners and customers.