Lenovo to quickly integrate IBM server business in one coverage model

While both Lenovo and IBM used some different distributors, under Lenovo all distributors formerly used by both companies will remain, and each distributor will be able to sell any server Lenovo sells. All partners will also be able to sell all Lenovo servers.


Chris Frey, Lenovo’s North American channel chief

Lenovo has announced that the conditions for its acquisition of IBM’s x86 server business have been satisfied, and the transaction is expected to close on Wednesday, October 1, 2014. Lenovo also indicated their plans to ensure a smooth transition in North America, which will see the IBM business quickly integrated into the Lenovo model, with all IBM products now being available to all Lenovo resellers and distributors through open distribution.

“This is another historic day for Lenovo, as we officially finalize the deal October 1 and become the number three server company in the world,” said Yang Yuanqing, chairman and CEO of Lenovo.

Yuanging outlined Lenovo’s plan to reach a goal of $5 billion U.S. in revenue within a year, in which he said the “smooth integration of the x86 business and its talented team” would play a key part. Customers would also be integrated, and Lenovo’s operational excellence and efficiency would be leveraged globally, as Lenovo builds up its enterprise business.

The server transaction sees Lenovo acquire IBM assets that dwarfed Lenovo’s own server business, which only within the last several years became of strategic importance to the company. With the acquisition, Lenovo has just over 12 per cent of the global server business, with almost 11 per cent of that coming from IBM. Before the deal, Lenovo had only 1.5 per cent market share. The percentage of the business coming from IBM is even greater on the enterprise side.

Through the deal, Lenovo gets System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, and blade networking and maintenance operations from IBM. IBM keeps its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, PureApplication and PureData appliances.

Adalio Sanchez, who led the x86 server business at IBM, will continue in this capacity at Lenovo, as senior vice president of Enterprise Systems. The x86 server business will be organized under Lenovo’s Enterprise Business Group, reporting to Gerry Smith, executive vice president of Lenovo Group and president of Enterprise Business Group and Americas Group.

“Our customers will continue to be able to leverage the IBM service and support structure, which is world class,” Sanchez said, noting that Lenovo has signed a five year contract for support for both ThinkServer and x86. “IBM has tremendous skill and Lenovo will leverage it heading forward.”

“The new team from IBM can look forward to an exciting road ahead,” Smith said. “Getting to number one will be a challenge but we are 100% committed to the enterprise as we are to PCs.”

Smith said the channel will play a key role in the expanded server business.

“This is a great opportunity for the channel,” he said. “We will leverage both x86 partners and Lenovo partners on a worldwide basis. The ThinkServer business will focus on SMB business and the x86 will focus on the enterprise. The channel is one of our biggest weapons. We have always been a channel driven company. We did that with PCs and we will do the same in the enterprise space.”

“We are excited about the news and waiting for Wednesday to come so we can start building this business,” said Chris Frey, Lenovo’s North American channel chief.

Frey emphasized that even though most of the server business is coming from IBM, the server business will be organized on a single coverage model – the Lenovo model.

“The North American channel, starting October 1 and with our next fiscal year in April, will be focused on what we are calling One Lenovo and One Channel,” he said. “It means one coverage model, and one community. We won’t be in siloes from a product point of view. Our sales force will be in one compensation plan. And there will be one set of channel programs. The IBM programs will stay the same at first, but over the course of time, and quickly I might add, we will integrate to one program. We are not going to have specialty networks that are treated differently with competencies that may not fit partners’ business model.”

Frey also emphasized that the former IBM servers would be integrated into Lenovo’s distribution model.

“We need to deliver one partner experience,” he said. “Today the Lenovo distribution model is an open distribution model, where distributors can sell to anyone. We will open up IBM’s model to look like our model.”

Frey said that while both Lenovo and IBM used some different distributors, under Lenovo all distributors formerly used by both companies will remain, and each distributor will be able to sell any server Lenovo sells.

“We both have done business with Tech Data and Ingram Micro, while System x has Arrow and Avnet and we have D&H and Synnex,” he said. “All distribution partners will now be able to sell both server lines.”

All existing partners will be able to sell the x86 servers – if they want to do so, Frey said.

“I think many in the marketplace underestimate the ability of the Lenovo partner network,” he said. “Some partners want to stay in the volume transaction business but others have been waiting for this to happen so they can play in the value space, and others are between those two. We are not focused just on the data centre. The biggest market opportunity today isn’t in the converged infrastructure, but is still on the transaction side. The market is going to the cloud, but the opportunity below that is still very large, especially with the Server 2003 refresh coming.”

A top initial target will be recapturing some of the IBM business lost to competitors in the wake of the initial announcement of the server sale to Lenovo. IDC numbers for the last quarter show that while Lenovo’s server business was up 62 per cent, IBM’s business dropped 3 per cent.

“A little share was lost, but now we want to talk to customers about accelerated growth, and scale,” Frey said. “We are about attacking the marketplace.”

“Our competitors have been very aggressive in attacking IBM customers, but no matter how much our competitors have won from IBM, we will win it back,” Yuanging said. Smith added that over the next two quarters they will do a lot of work stabilizing the IBM business, and then will be going on the attack.