The news that IBM is selling its x86 server business to Lenovo is seen by many as the end of an era. However, some have said it could mark the start of a strategic partnership that will see the two firms work together to cover the entire IT market.
When IBM and Lenovo announced the $2.3bn agreement this week, it confirmed rumours that had been circulating since at least last year that Big Blue was looking to shed its x86 server business due to declining profits.
The deal sees Lenovo acquire IBM's System x server line, which was recently updated to the sixth generation of the platform, along with the BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations.
Many industry observers have seen this move as an inevitable one, given IBM's long-term transition towards a business model focused more on IT services and solutions than on manufacturing hardware.
It is also easy to see the current deal as part two of a move that started in 2005 when IBM sold its end-user PC division to Lenovo. In fact, on a conference call to discuss the deal, Lenovo senior vice president Peter Hortensius described it as, "the logical next step for us".
However, IBM still has an interest in the x86 market, and confirmed that it will continue with development of projects such as Linux and other open source software for x86, which it is a major contributor to.
Meanwhile, the enterprise X-Architecture that underpins IBM's System x line is also used in the firm's PureSystems line of expert integrated systems. IBM confirmed that this technology will go to Lenovo, which will then be responsible for its continued development.
"Following the closure of the transaction, Lenovo will also assume customer-related service and maintenance operations," said Adalio Sanchez, IBM's general manager for System x, who will himself be moved to Lenovo as part of the deal.
"But behind that, IBM will continue to provide the maintenance delivery on behalf of Lenovo for an extended period of time, so customers should see very little change in terms of support delivery," he added.
The picture that is emerging seems to show that while IBM is to focus its attention on services and its mainframe and other high-end systems based on the Power architecture, it will be able to rely on Lenovo for high-volume commodity x86 servers and technology where necessary, and vice versa.
"Are Lenovo now IBM's low-margin low-value business strategic partner, enabling them to exit such markets, yet retain some influence through OEM deals?" said Ovum analyst Roy Illsley, adding that the latest move demonstrates that, "System z, Power, Pure and Storage are more high value and strategic than low-end x86 commodity servers."
This was apparently confirmed by Hortensius, who said that there are clear commercial and financial benefits to both firms from the deal. While the move "grows our server business by a factor of 10 at a stroke," the deal will also enable IBM to "exploit our strengths as Lenovo", he said.
However, Lenovo already has its own brand of x86 servers, the ThinkServer line. The firm said that these will continue to exist under the ThinkServer name, and that there are no plans to change its server branding strategy.
Instead, when asked why Lenovo was buying IBM's server business rather than build up the ThinkServer portfolio, Hortensius said it would shorten the time needed to build a presence in the market.
"This deal accelerates our strategy by, we think, at least five years" he said. "It gives us full end-to-end capability in development and sales, linked with a very strong supply chain that would take us years to build to the same point."
One potential fly in the ointment is the question of regulatory approval for a Chinese firm to take over control of something so vital to data centre infrastructure and cloud services as the server nodes that operate it all.
This concern was brushed aside by Hortensius who said that Lenovo's strong reputation of providing compliance and transparency, along with the commodity nature of x86 servers these days meant that he had "full confidence that we can close the deal".
Part of the deal includes a global agreement for Lenovo to resell IBM products including its Storwize disk storage systems, tape storage systems, SmartCloud Entry offering and elements of IBM's system software portfolio. Meanwhile, IBM is also gaining access to Lenovo's sales channels, and will able to source x86 servers and client systems from Lenovo for its own customers.
To summarise, it looks very much like the deal positions IBM and Lenovo as a duopoly that can go to market together to take on industry rivals such as HP, Dell and Oracle, all of which have also been striving to turn themselves into one-stop IT providers for the enterprise market.
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