I had the pleasure a few weeks back to spend two days with the senior management team of the Lenovo enterprise group at their newly-renovated headquarters in the Research Triangle area of North Carolina. The new Lenovo enterprise team combines the IBM X86 assets acquired by Lenovo and the original Lenovo enterprise team. The event I attended was an enterprise industry analyst event attended by about 20 analysts from around the globe.
I have to say I left the event a lot more impressed about Lenovo’s enterprise future than when I walked in. I was bullish on Lenovo’s strategic move, but the deal hadn’t closed and I hadn’t met the players or received the deep, strategic dive. While there was a lot of information that was shared under NDA, I’ll do my best to genericize it and lift the important takeaways versus sharing specific facts and figures. In future columns, I will dive even deeper into the specific Lenovo Enterprise content.
Lenovo Enterprise “No Spin Zone”
The first impressive thing I noticed was that no one at Lenovo tried to spin me. I can’t tell you how many times I attend a large company analyst event and the vendor talks to us as if we’re stupid; they have no weaknesses or threats, just strengths and opportunities. I’m hard to be spun as I spent over 20 years as a hardware OEM and chip manufacturer before I started Moor Insights & Strategy and have sat in their shoes before. Lenovo was honest and humble.
The Lenovo enterprise “no spin zone” was a big positive as it indicates that they are confident that they will improve their weaknesses and address their threats. That also portends to the strong leadership team led by Adalio Sanchez, SVP of Enterprise Systems and a 30 year IBM’er. You see, if you open yourself and share your negatives outwardly and don’t fix them, you are doomed, and the team knows that, which motivates them even more to win. It also engenders a more open style of communication inside the company where there is always room to improve.
If you have the high self-awareness and aren’t afraid to tell outsiders then you must have a plan, right? That’s definitely the case for Lenovo enterprise. In my words, here were my takeaways on what Lenovo will do:
Drive high volume servers
While blades and hyper-converged are sexy, server racks are the high volume runner. HP and Dell dominate here. The old IBM x86 business wasn’t able to drive high volume as it was too low margin, but at Lenovo, compared to PCs, those margins are really good. The old Lenovo enterprise business was successful at driving rack volume in China, but not necessarily outside of the country. Towers are important, but not nearly as important as racks. Being successful in racks and towers means much higher volume and scale, very important to the Lenovo business model. Scale drives costs down and makes you more relevant to the broader datacenter ecosystem.
China, China, and more China
Over the next five years, the highest server market growth rate is in China and I’ve seen estimates of approximately 40% growth. Lenovo does quite well in China already but more and more, the Chinese government is putting mandates in place for government, financial, education and military institutions to buy from local vendors. All this obviously gives Lenovo advantages in China when you combine the “local” Lenovo and IBM’s 20 years of systems design skills in the datacenter.
Skate to where the systems platform puck is going
There are many growing markets and product segments that Lenovo will need to participate in to get them where they need to be. Racks and towers drive the volume, but it’s not the future growth or higher margin areas.
The cloud is a key growth area. While IBM’s Power on SoftLayer is nice, X86 servers on OpenStack for public and private clouds is an enormous opportunity, and x86 constitutes 98% of the cloud today. I believe that IBM throttled IBM’s x86 server business in this market as it wasn’t aligned with “Power on SoftLayer.” While IBM positioned NeXtScale as scale-out, I always saw it as more about an HPC play than for the the scale-out cloud. Lenovo was reasonably successful in the hyper-scale space at 10% share as they actually had a hyper-scale offering in China they could offer customers like Baidu, Alibaba and Tencent. Baidu gave Lenovo its 2014 supplier of the year award, which says a lot.
To attack the future hyper-scale cloud market, the largest of cloud datacenters, Lenovo has created an entirely new group filled with very experienced hyper-scale employees, led by Roy Guillen, who formerly ran Lenovo’s enterprise product group and previous to that, helped create Dell’s hyper-scale DCS capabilities. Lenovo brings many structural advantages to the table and I’m keeping a very close eye on Lenovo in this space. You can just imagine the impact if Lenovo could bring to bear a Quanta cost model combined with IBM technologies. That would be scary.
The next area is converged and hyper-converged. These are servers that are very dense, have inter-chassis fabric and networking, and are very efficient to manage. Think VCE, Dell’s VRTX and FX2 and HP’s Moonshot. While unit volumes here aren’t big today, they very well could be the replacement for blades and be valuable to those enterprises as these kinds of converged architectures improve management efficiency (less people to manage more systems), speed of rollout, and speed of changes. IBM actually has many of the technologies and capabilities to create any kind of converged or hyper-converged platform. IBM’s HPC-focused NeXtScale platform has most of these capabilities today.
HPC is the final growth area. IBM has been very successful in HPC as evident by their 150-175 placements in the HPC Top 500. HP has around 200 placements and I’m sure the new Lenovo would like to get a crack at that. In addition, more and more HPC applications are increasingly coming into the enterprise, a growing enterprise opportunity. Think drug research, high volume simulations, etc.
While the combined IBM-Lenovo breadth of storage capabilities is wide, it is also very under-indexed on business volume. In other words, it can be generating a lot more revenue. If you look at what both companies brought to the storage table, it spans all the way from co-branded personal and personal entry-level storage with the Lenovo, LenovoEMC iX/pX to IBM Storwize V3700 and Lenovo SA120 all the way to major-league EMC VNX8000 storage-systems.
So what does the future hold? Let me just say it looks very compelling in terms of capabilities, product and market coverage. I cannot share details, but keep your eyes on this space.
My initial assessment of the combined Lenovo-IBM businesses after deal completion is quite positive. With the Lenovo enterprise executives I met with, which was a very balanced distribution of classic IBM x86 and classic Lenovo, I saw first-hand a strong of passion for winning, an accurate self-awareness of what needs to change and improve, and a strategy that is very direct and easy to understand.
Now comes the hard part. Lenovo enterprise needs to execute. At classic Lenovo, they excel at execution as evidenced by their performance in PCs and the way Lenovo is managed from the tops down. They also know how to get to a #1 market share position.
Net-net, the Lenovo Enterprise business could become a very lethal combination of the best of IBM and the best of Lenovo. It won’t be easy, as their competitors aren’t resting on their laurels. I’ll be following this very closely and will be writing a lot about this.