Giorgio Nebuloni, Research Manager, Servers, at IDC Europe
How will this change the market dynamics?
"In EMEA, IBM is the third largest supplier of x86 servers after HP and Dell, with a market share of 13% and revenue of around $900 million in 1Q13–3Q13. In its before-acquisition status, Lenovo had less than 1% market share in EMEA in both units and revenue. This means that a new Top 3 vendor is potentially born out of this deal as far as Europe and EMEA is concerned. IDC believes that in EMEA, even more than the technology IP, in a single shot the deal will help Lenovo acquire customer base, skilled salesforce, channel relationships, and brand recognition. Also, the fact that integrated solutions such as PureSystems and blades are included in the deal raises the profile of Lenovo even within large accounts. All of these elements have typically been the gap that prevented Asian companies such as Acer and Lenovo itself from expanding their market share and relevance in the past. For competitors like Dell and HP, this could potentially mean stronger competition in SMB environments, where IBM had been less aggressive in the past, especially given that Lenovo has experience in building and growing an acquired business in the form of IBM's PC business."
Why did IBM sell off its x86 business?
"Firstly, IBM has not been able to build the scale in the x86 business that would make it a market leading contender. Additionally, as confirmed in recent statements of intention, and with SoftLayer's acquisition last year, IBM believes it can and should address most of the infrastructure needs of its customers with IaaS cloud services, competing with vendors like Rackspace, Amazon Web Service and Microsoft. On top of this, we estimate gross margins in the x86 area are in the 15%–25% range typically — and depend strongly on operational efficiency and volumes — versus 40%–50% in legacy higher-end servers and 70%+ in software, where IBM will continue to play. Even IaaS services itself — despite the widespread assumption of low profitability — might be more profitable for IBM."
What are the consequences for the channel partners and customers?
"In a way, little will change for channel partners and customers in Europe, certainly in the medium term. Probably even more than IBM, Lenovo is a channel-driven company, with virtually 100% of current server sales achieved through distribution. We recommend IBM partners and customers avoid disruption to day to day work with the vendor, while at the same time using this as a window to assess their longer-term strategy in terms of infrastructure consumption (on-premises, off-premises, managed, etc.) as well as supplier framework. However, as the buyout is far from complete and in particular U.S. regulators could pose hurdles, IDC advises against any rushed moves in any direction".
Who could gain most from the deal?
"On paper, the deal fits with the broader strategy of both vendors, Lenovo on its path to diversify from the core PC business and into richer product areas and IBM on its move to become a cloud provider first. The interesting bit will be related to how the companies will manage the transition for the richer x86 blade environments, which in some areas have replaced legacy UNIX platforms as the building block for core enterprise applications. IBM will retain only the Power-based portion of blade environments, yet this will require a long-term joint work with Lenovo in several customers currently using both x86 blades and Power or System z mainframe environments or even storage blocks, which IBM will keep in its portfolio. We don't know the details of this switch, and as they say, the devil is in the detail".
