IBM Server Deal Gives Lenovo the Tools to Take On HP, Dell

By Jeffrey Burt  |  Posted 2014-01-23 Print this article Print

Between that and IBM's ongoing relationship with Lenovo—stemming from the Chinese company buying IBM's PC business in 2005 for $1.25 billion—the impact on customers should be minimal, Rosamilia told eWEEK, noting that about 7,500 employees from the x86 server business will move to Lenovo.

"We expect a very smooth transition because a) we've done this before with these guys, and b) we'll be providing the maintenance support for these customers," he said. "When they call for help, they'll deal with us."

The deal is part of IBM's continuous effort to shed low-margin, commoditized businesses—such as PCs, printers and disk storage—and focus more on growth areas, including data analytics, software and cloud computing, and businesses like Smarter Planet and its new Watson business unit.

"For IBM, the deal allows it to gracefully exit an increasingly commoditized market, repays significant investments in x86-based system development, extends and deepens its relationship with a long-trusted strategic partner and allows it to target its resources on long term goals and market opportunities," Charles King, principal analyst with Pund-IT Research, said in a research note.

Selling the server business to Lenovo also strengthens IBM's relationship with a key partner in the booming China market.

While there won't be much change in the server market in North America and other mature markets, it's in China where HP and Dell will feel much of the impact of a significantly stronger Lenovo, according to analyst Richard Fichera at Forrester Research.

"Life just got tougher [for competitors], especially in China and other emerging markets," Fichera wrote in a post on the Forrester blog site. "Lenovo has an efficient supply chain and a deep channel organization with excellent SMB reach. This deal now gives them a world-class server product line that suddenly jumps them to a parity or superior position to Huawei in China, and gives them local supplier status versus Dell and HP along with a competitive product lineup."

Dell probably stands to lose the most with a stronger Lenovo on the scene, he wrote. Lenovo not only comes with a strong reputation for dealing with small and midsize businesses both within North America and in other markets, but now it will have IBM's portfolio of enterprise-level products.

"Current volume customers of HP and Dell should look forward to gaining another viable competitive option for future low-end server procurements," Fichera wrote.

The deal is expected to close in six to nine months, and executives with both companies said they do not see any significant hurdles in the regulatory review process.



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