By Charles King, Pund-IT, Inc. February 4, 2015
Dynasties tend to be hard on kids, especially when primogeniture – the awarding of premium rights and inheritances to firstborn children – is part of the mix. This isn’t to say that such environments necessarily devolve into scenes from The Lion in Winter or outtakes from The Sopranos, but they do tend to breed feelings of entitlement and neglect, deservedly or not.
It is arguable that just such a state of affairs existed at IBM in the years leading up to last year’s sale of its System x organization and assets to Lenovo. The deal followed a decade of remarkable, even astounding technical and commercial gains by Intel-based servers to the point where they dominate (with some 80%+ of annual sales) business computing environments of nearly every kind. But despite this ongoing progress, IBM typically positioned and promoted its own z System mainframe and Power System solutions ahead of Intel-based System x offerings.
That made sense from an overall business perspective. Like other proprietary computing architectures, IBM’s mainframe and Power solutions delivered higher profit margins than System x. Additionally, the company has long sought to avoid or to extricate itself from commodity-centric technologies and markets. However, that also led to some customer confusion and missed opportunities in markets that remain clearly ripe for x86 technologies.
But that was then and, as was amply clear last week in Raleigh, North Carolina at the Analyst Insights event hosted by Lenovo’s new Enterprise Business Group (EBG), this is very much now. There, Lenovo’s EBG executive team (most of them former IBMers) provided a clear view of the group’s current state, its immediate plans and the opportunities and challenges that lay ahead.
Lenovo and System x – cultural fitness
Virtually every IT industry acquisition faces cultural and technological compatibility issues, with the former being thornier far more often than the latter. But cultural challenges seem relatively minor in the match-up between Lenovo and System x.
Why so? Partly due to an element of “been there/done that” in the proceedings. After all, a decade ago Lenovo acquired IBM’s PC division, and both it and System x shared a campus in Raleigh, so the two companies share a long history, as do many of their workers. In other words, there were fewer surprises for either side this time around.
But the position of System x at IBM, where it tended to take a backseat to the mainframe and Power organizations, means that most everyone in the group relishes the shift in strategic value. At Lenovo, System x is the “point of the spear” of the company’s enterprise-focused plans and hopes. For an organization that has long been every bit as “enterprise class” as its elder siblings, that recognition and respect, along with the opportunities for unfettered competition, are especially welcome.
The view ahead
Analyst Insights was kicked off and led by Adalio Sanchez, formerly GM of System x and now SVP of Enterprise Systems who began by enumerating Lenovo’s market strategy and EBG’s role in the process. In essence, the company’s future plans include driving to $100B in annual revenues, being a leader in each of its core businesses (as it is now in PCs), achieving significant growth in new businesses and being an effective vendor of endpoint-to-data center computing solutions.
How will Lenovo EBG help achieve those goals? In two significant ways. First, the group has brought Lenovo a remarkable wealth of products, customers, experience and intellectual property. That begins with 6,500 new employees, 2,000 of them engineers, along with deeply established industry, partner and channel relationships. The EGB product portfolio automatically makes Lenovo a leader in higher end (4-way and above) Intel-based systems, supercomputing and HPC (there were nearly 100 System x-based installations in the most recent Top500.org list) and in-memory analytics (the group accounts for two thirds of SAP HANA systems sold).
Sanchez noted that by 2017, IDC estimates that the annual WW server market will be $52B and the WW server-driven storage market will be $27B. In other words, acquiring System x effectively created an $80B annual market opportunity for Lenovo. That is obviously a highly optimistic view but could also be prescient for two reasons: 1) the disruption that so-called 3rd Platform (mobile, cloud, social and big data) technologies that favors many areas where Lenovo EBG is particularly strong, and 2) within two to three years, IDC expects 40% of server growth to be in China, a particularly strong market for Lenovo.
The EBG Analyst Insights event covered numerous subjects and issues, many of which were discussed under NDA. But the broad takeaway and Lenovo’s progress since completing the acquisition of IBM’s System x in November were largely positive. In short, the organizations have much in common, and Lenovo’s previous experience in buying IBM’s PC division paved the way and should help minimize or eliminate the chance of any mistakes with this new acquisition.
Given the magnitude and market success of the IBM assets included in the purchase, it is hard to see the $2.3B price as anything but a terrific deal. In fact, System x offers Lenovo a wealth of goods and relationships that could and should help the company achieve most or all its technological and commercial goals.
Lenovo had previously done an excellent job in developing and delivering a range of solutions valuable to businesses and their employees, especially desktop and notebook PCs. But the addition of and strategy around the Enterprise Business Group means that the company is now effectively delivering enterprise-class solutions from a wide variety of endpoint devices to numerous data center systems.
However, that does not mean that the way ahead will not be challenging. Though cultural issues between Lenovo and its new employees seem to be stable, building a fully integrated team takes time, patience and effort. Even the most loyal customers and partners need to be assured that the company is both willing and capable of attending to their critical needs. There will certainly be potential, unknown stumbling blocks to encounter, along with competitors that will attempt to turn every simple trip into an embarrassing pratfall.
DNA is obviously important, but it does not define the future. In fact, sometimes familial dynamics can be more binding than freeing, and an ambitious offspring is better off in new climes than remaining with what is merely familiar. From what was apparent in Raleigh last week, Lenovo’s purchase of IBM’s System x should be positive for all involved. If the company and its new EBG leadership and employees persevere, they seem very likely to prevail.
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