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For IBM and Lenovo, System x Marks the Sweet Spot

In case you missed final week’s announcement that Lenovo can be buying IBM’s System x x86 server enterprise, listed here are a few of the particulars:

  • Lenovo is buying IBM’s x86 server {hardware} enterprise for US$2.3 billion, roughly $2 billion of which shall be paid in money and the steadiness in Lenovo inventory. The property lined by the deal embody the System x rack servers, BladeCenter and Flex System blade servers and switches, x86-based Flex built-in techniques, NeXtScale and iDataPlex servers and related software program, Enterprise X-Structure applied sciences, and blade networking and upkeep operations;
  • IBM will proceed to develop and evolve Home windows and Linux software program for x86 platforms. It would retain its System z mainframes, Energy Programs, Storage Programs, Energy-based Flex servers, and PureApplication and PureData home equipment;
  • Roughly 7,500 IBM workers, together with these at main areas equivalent to Raleigh, Shanghai, Shenzhen and Taipei, are anticipated to be provided employment by Lenovo;
  • The businesses plan to enter a strategic relationship that can embody a world OEM and reseller settlement for Lenovo to promote IBM’s entry and midrange Storwize disk storage techniques, tape storage techniques, Common Parallel File System software program, SmartCloud Entry providing, and components of IBM’s system software program portfolio, together with Programs Director and Platform Computing options. In flip, Lenovo will change into IBM’s most popular vendor of x86 server options.

For IBM and Lenovo, System x Marks the Sweet Spot

Timing, Worth, Scope

Rumors of a deal had been floating round for months, and although just a few new permutations lately arose round Dell’s supposed curiosity, most assumptions centered on the timing, scope and value of a deal as an alternative of its probability.

Timing: Whereas this was partly sensible — you do not hammer out a multibillion greenback settlement or exit a serious market in a single day — the deal additionally didn’t impinge on two latest main IBM bulletins: the $1 billion funding and launch of its new Watson Venture and enterprise unit, which hit the information earlier this month; and the earlier week’s reveal of plans to speculate $1.2 billion in a serious enlargement of its world cloud companies information middle infrastructure.

The deal highlights Lenovo’s ongoing progress in growing information middle options and additionally punctuates the enterprise endpoint bulletins Lenovo made at CES 2014. Backside line: The timing of the announcement was good for each firms.

Worth: At first look, the $2.3B price ticket appears on the low aspect, because it encompasses IBM’s whole System x {hardware} portfolio, together with the highend Flex Programs and new sixth-gen EXA applied sciences. That could be the case, however last costs rely extra on purchaser willingness than vendor need.

There was hypothesis that IBM would maintain again the Flex System and EXA property — however from a aggressive standpoint, Lenovo would have been silly to accept something lower than the complete package deal, since high-end choices ship distinctly higher worth and margins than high-volume options.

The value is no less than partly mitigated by IBM deepening its relationship with a long-trusted strategic associate. If and when IBM prospects need x86 servers, Lenovo can provide them. Plus, agreeing to resell IBM storage options could possibly be excellent news for that portion of IBM’s {hardware} enterprise.

Extra tangibly, the proceeds of the sale basically can pay for IBM’s new Watson mission and enterprise unit, in addition to its cloud information middle enlargement efforts introduced earlier this month. Backside line: The value is nice for each firms.

Scope: Lenovo has lengthy manufactured its personal quantity ThinkServer options — a few of which leverage IP licensed from IBM — however the deal supplies the firm rapid entry to a full complement of market-tested System x quantity servers and enterprise rack techniques, blade techniques and built-in techniques/home equipment (BladeCenter and Flex), extremely dense techniques (NeXtScale and iDataPlex), high-end reminiscence/throughput applied sciences (EXA) and complementary networking options.

That can make Lenovo a direct participant in quite a few markets that had been well-beyond its earlier grasp. Whereas IBM has lengthy trailed Dell and in quantity x86 servers, it has been the market chief in 4-way and above x86 server options for years, a place Lenovo ought to now fill with ease.

The deal additionally permits IBM to gracefully exit an x86 server promote it considers basically commoditized, preserving to a longtime technique that noticed earlier gross sales of once-core firm options, together with PCs, onerous disk drives and enterprise printers.

Lastly, promoting System x ought to assist IBM focus its consideration and assets on the cloud companies and cognitive computing options it believes are central to its future success. Backside line: The deal’s scope supplies good worth to each firms.

Vital Relationships

Maybe the most essential facet of this acquisition, as with each IT deal, is the human aspect. Lenovo’s anticipating to make use of some 7,500 present System x workers primarily based in Raleigh, Shanghai, Shenzhen and Taipei, together with System x management, administration and gross sales executives. This displays the technique Lenovo pursued after buying IBM’s PC division in 2005, and it’s completely essential from a enterprise continuity standpoint.

These IBM staff deeply perceive the System x portfolio, and they’ve sensible, ongoing relationships with IBM prospects that may be troublesome or inconceivable to duplicate.

General, this deal will yield optimistic outcomes for each firms. It permits IBM to gracefully exit an more and more commoditized market, repays its vital investments in x86-based system growth, extends and deepens its relationship with a long-trusted strategic associate, and permits it to pay attention its assets on long-term objectives and market alternatives.

The deal presents Lenovo near-immediate entry into high-value enterprise IT markets. The migration of System x executives, managers and staff to Lenovo ought to place it in good stead with current and potential prospects, and contribute considerably to its future success.

In actual fact, if Lenovo can obtain with IBM’s System x options what it has completed with IBM’s PC property, the outcome could possibly be a big reordering of the companies and expectations related to Business Commonplace x86-based servers and options.
For IBM and Lenovo, System x Marks the Sweet Spot


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