Why IBM-Lenovo server deal makes sense

Summary:The key question is whether customers will stay with System x systems or make future purchases from others.

Lenovo announced that it has plans to acquire IBM's X86 business for $2.3 billion . Both companies are hoping for the same success that resulted from IBM's 2005 sale of its PC business to Lenovo. Here's some of what Lenovo had to say about the latest move:

Lenovo (HKSE: 992) (ADR: LNVGY) and IBM (NYSE: IBM) have entered into a definitive agreement in which Lenovo plans to acquire IBM’s x86 server business. This includes System x, 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. The purchase price is approximately US$2.3 billion, approximately two billion of which will be paid in cash and the balance in Lenovo stock.

Snapshot analysis

It is clear that IBM has decided that it has had enough of the rough and tumble, quick slide to the bottom of the world of industry-standard servers and has chosen instead to focus on software, services and systems in which it controls the majority of the architecture — System z mainframes and Power-based systems that support its System i and System p offerings.

Although IBM's x86-based offerings have been based upon the company's long experience, it doesn't always win because of the bruising competition with HP, Dell, and other suppliers of x86-based servers. Customers have increasingly demonstrated that they are more interested in lowering costs than features such as higher single-system performance, reliability, manageability and security of business-critical workloads; or decades-long experience with virtualized computing environments.

There are many key questions that are not yet answered about this move including the following:

  • Will IBM system customers trust Lenovo to supply systems for their business-critical applications even though Lenovo doesn't have IBM's long track record of success in the enterprise?
  • Will Lenovo be able to provide enterprise-level, on-the-ground support for enterprises that meets the high expectations these customers have?
  • Will future systems be designed with the same level of broad expertise in processors, memory, storage, networking and virtualization IBM has shown over the years?

The answers to these questions can all be summed up in the statement "we'll have to wait and see."

I expect, by the way, that HP, Dell and other suppliers of X86-based systems will immediately start "drop IBM and come to us" campaigns to persuade those who are uncomfortable with the future of IBM's System x to purchase systems from them.

Topics: Data Centers


Daniel Kusnetzky, a reformed software engineer and product manager, founded Kusnetzky Group LLC in 2006. He is responsible for research, publications, and operations. Mr. Kusnetzky has been involved with information technology since the late 1970s. Mr. Kusnetzky has been responsible for research operations at the 451 Group; corporate and... Full Bio

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