After Olympics Success, Lenovo to Go Global with Servers

Published: September 2, 2008

by Timothy Prickett Morgan

While companies in the Asia/Pacific region were familiar with the Lenovo desktop and laptop PC brand, the Chinese company did not really register on the radar of consumers and businesses in North America and Europe until Lenovo bought IBM's beleaguered PC business in 2004 for $1.25 billion. But the Lenovo name may get a little better known now that the company has successfully delivered the infrastructure to support the Beijing Olympics, including servers that the company is apparently getting ready to sell worldwide.

Lenovo has made and sold servers in its home Chinese market for years, but is predominantly a PC manufacturer that grew its engineering and manufacturing capability significantly by acquiring the IBM PC business. Earlier this year, several months after Lenovo delivered 242 tower servers, 140 rack servers, 141 notebooks, and 2,375 desktop PCs to the Olympics, IBM announced that Lenovo was licensing IBM's System x designs for single-socket and dual-socket servers as it geared up to sell Lenovo-branded servers into SMB accounts on a global basis--much as it does with PCs since buy the IBM PC biz. You might think, after the mess the original PC created and the fortunes that it made for Intel and Microsoft, that IBM would rather just crush Lenovo. But doing so would be hard, particularly when IBM's top brass has moved its entire supply chain procurement to Asia and very much wants to tap into the exploding Chinese market and sell high-end and profitable servers. So, instead of fighting Lenovo on the X64 server turf, IBM licensed its designs in exchange for being able to provide Level 1 tech support for the boxed that Lenovo will make based on the designs. That's better than IBM would have gotten if Lenovo go miffed and partnered with Hewlett-Packard or Dell.

According to a report in The VAR Guy, a channel blog, Lenovo will use the Interop tradeshow in New York in mid-September to launch its first Linux and Windows servers intended for global sale, and presumably based on the System x designs that Lenovo licensed from Big Blue back in January. But there may eventually be more to this deal than meets the eye.

With a supply chain expert and former PC general manager, Bob Moffatt, now in charge of Systems and Technology Group, it could turn out that this deal eventually gets shifted to Lenovo manufacturing all of IBM's Modular Systems and entry Power Systems machines. Why not? IBM hasn't manufactured its xSeries and then System x servers for a long time, and it is making Power-based servers in China already for the Asia/Pacific market. IBM is in love with Asia--or more precisely, the double whammy of lower manufacturing costs and an exploding and profitable market to sell IT gear into--and I doubt very much that the company's managers or bean counters give a care about keeping jobs in America or Europe, where at least some of its iron is made. For all I know, executives like Bill Zeitler, who cut his teeth on mainframes and midrange gear made in New York and Minnesota, were the main reason why factories in those states were not already closed. But, of course, Zeitler retired on August 1, and Moffatt, who presided over the PC and printer businesses that IBM sold off as well as managing its supply chain, is the new sheriff in town.

I find it tragic that IBM, with all of its exuberance for the small and medium business market, would have gotten out of PCs and printers at all and would not have figured some way to do what HP has done--sell the complete package to SMBs. And I find it ironic--or maybe tragic, too--that IBM believes that Lenovo will be targeting different customers with its X64 servers. Unless IBM has no market share in X64 servers among SMB shops--and has no hopes of ever breaking into this space--then it is hard to believe that an encroachment by Lenovo with System x designs in North America and Europe won't hurt Big Blue's own sales. Imagine a company that sold a complete network--PCs, servers, storage, and software--instead of piece parts? How cool would that be for SMBs?

We may just find out soon.

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