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Lenovo after IBM server deal: We will fight back vs. HP FUD

HP aggressively went after IBM's x86 customers ahead of the Lenovo acquisition and had some success. Lenovo execs say it's now time to fight back and become the No. 1 server vendor. On Oct. 1, Lenovo will be No. 3.

Lenovo, which closed its $2.1 billion purchase of IBM's x86 server business Monday, said it will "go on the offensive" to combat Hewlett-Packard's recent gains en route to become the No. 1 server vendor.

Yang Yuanqing, chairman and CEO of Lenovo, said the deal , which closes Oct. 1, will make it the No. 3 server vendor in the world. IBM's server unit brings "world class experience" to Lenovo as well as manufacturing knowhow and patents. "We will make sure that our existing customers have a seamless transition," said Yuanqing, speaking on a conference call. "We can beat ODM and OEM competitors. We will expand our geographical reach and realize hyper growth."

"Getting to No. 1 will be a challenge, but we are determined to succeed," said Gerry Smith, executive vice president of Lenovo Group and president of enterprise business and Americas groups. Smith predicted a repeat of the success that followed the Lenovo's 2005 acquisition of IBM's PC business and said the enterprise server unit would win mid-market accounts and grow in emerging markets. "We will invest in innovation," said Smith, who said the server business will be a profitable $5 billion business in one year. "I'm eager to get started to bring the fight to our competitors," he said.

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The primary competitor to Lenovo's beefed up server unit is HP, which actively pitched IBM's x86 customers to grab customers. Executives were asked why Lenovo paid $2.1 billion instead of the $2.3 billion announced in January. The implication is that IBM's x86 server business was sucking wind and resulted in a lower price. Lenovo said that deferred revenue and inventory values changed the price. Smith couldn't comment based on IBM and Lenovo quiet periods. "The fear and uncertainty period is gone," said Smith.

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According to IDC data, HP's efforts worked out nicely. IBM's second quarter market share fell to 23.3 percent in the second quarter from 27 percent a year ago. HP's market share edged higher as did Cisco's.

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In an FAQ document, Lenovo addressed the FUD issue.

Lenovo said:

Q5. HP has been actively going after IBM’s x86 customers and has made some impressive gains since this deal was announced. Did the terms of the deal change because of the decline of the business since?

A. No. Regarding our competitors, you need to remember that while some of them have been making a lot of noise and perhaps overstating their case, Lenovo has been subject to a mandated quiet period while the deal was going through the mandatory government approval process. Much of this noise has been around generating doubt and uncertainty about the deal getting closed. With the approval of the deal by the appropriate regulatory agencies around-the-world, these concerns have been fully addressed. Now that the deal is closed (as of October 1, 2014), you can expect Lenovo to go on the offensive and show our business partners and customers how the combination of System x technology, products and services combined with Lenovo’s operational excellence and customer focus are in fact the winning combination for the future of the Enterprise.

Now the IBM deal is closed, the real fun for Lenovo begins. Expect aggressive sales and pricing as Lenovo aims to win back share. "We will fight back," said Yuanqing.