The Lenovo/IBM System x Acquisition: Solid Progress, Lingering Questions

Last week I attended Lenovo’s first North American information technology (IT) research analyst conference at the company’s new facilities in Research Triangle Park (RTP), , North Carolina. The purpose of this meeting was to demonstrate Lenovo’s progress since acquiring IBM’s System x server line – and to underscore Lenovo’s investment commitment to grow marketshare in the x86 server and services business.

Lenovo believes that, just as the acquisition of IBM’s PC division helped it to achieve market leadership in PCs, that System x will assist it in becoming the world’s number one commercial server maker – although the company is not sure exactly when it will assume that mantle. (My projection, when I first learned that Lenovo was in the process of acquiring IBM’s System x line, was around five years after the acquisition – so around 2020 – see this blog for further details).

The first day of this event largely focused on company culture and strategy. The second featured briefings on server, storage and network products (along with an interesting side-discussion on branding).

Day 1: Company Culture and Strategy

Adalio Sanchez, the former general manager of IBM’s System x product line who is now Lenovo’s senior vice president of enterprise systems, kicked-off the event with a rousing presentation that described the differences in company cultures between IBM and Lenovo – and that described the latter’s x86 server, storage, networking and service strategies.

I’ve known Adalio for about 15 years – ever since he was the general manager of IBM’s pSeries (now Power Systems – IBM’s RISC-based product line). And from the beginning, my assessment has been that Adalio is aggressive, very knowledgeable and focused, and has a strong desire to succeed. To me, Adalio personifies what Lenovo must become: an aggressive, no-holds-barred competitor that will get in the face of other x86 server makers.

Under his leadership, the System x line blossomed – becoming a highly-reliable platform that was exploiting advanced self-healing functions (at a time when other vendor’s x86 server reliability was in question). System x also became the best-in-the-industry high-end x86 server platform.

As for the company’s strategy, Lenovo is a leader in mobile and PC markets – and is now focused on becoming the server market leader. It sees major changes taking place in the server marketplace as European spending is decreasing while solid growth is taking place in other locations around the globe (for example, growth in China, , should approach 40% over the next five years, according to some industry forecasts). Lenovo is already well positioned to serve emerging growth markets – both with company personnel and through distributors. China is obviously vitally important to Lenovo’s growth plan.

Day 2: Products

As for products, Lenovo believes that IT buying patterns are changing – shifting away from blade-based servers to bare-metal deployments, converged systems, hyperscale systems and workload-specific configurations (such as large memory Big Data analytics servers). The company sees itself as well positioned to service these new configurations with its Flex System architecture (for converged systems), with solid rack offerings, with workload optimized systems that provide access to very large memory – and with capabilities to build custom systems for hyperscale markets.

A closer look at System x shows that it remains to this day the most memory rich x86 server (with up to 12.2 TB of main memory/Flash cache in a single server), and the most upwardly scalable (with up to eight processors / 120 cores in a single 8-socket server). These servers are also supported by rich systems software including IBM’s innovative Enterprise X-Architecture (a unique scaling, memory management, resiliency and performance tuned environment), and by memory expansion hardware/software such as Lenovo’s MAX5 (memory expansion capability for the System x3850 X5 and x3690 X5architectures).

As I wrote in this report last May, Enterprise X-Architecture is used “to help scale the size of x86-based server configurations, to extend memory, to improve input/output per second (IOPS) performance, to improve virtual server performance, and to improve system resiliency). [It] is the reason why IBM System x servers have consistently claimed the top spot in the 4+-socket segment of the x86 marketplace”.

Other important offerings include strong, integrated security products, system-focused management offerings, and high-performance computing (HPC) strengths.  Lenovo also believes that it has unique strengths in security, including minimizing software vulnerabilities by ensuring that patches are kept up-to-date, such that anti-malware and antivirus protection is in place, and by ensuring that programs are tightly integrated with one another (closing the door to phishing attacks, Trojan horses, and backdoor exploits).  And the company protects systems and boot firmware from boot kits and other hacker intrusions by compliance with the Trusted Computing Group standards, plus the use of special security features that prevent any code from executing or receiving updates until its authenticity has been verified.

As for system management, IBM tended to build extensive cross platform management functions that may or may not be used by systems administrators – while Lenovo primarily focuses on managing its own hardware and reporting up to other system management environments. And in HPC, the company offers an advanced, highly integrated compute node known as NextScale which helps customers tackle high-performance compute-intensive tasks quickly. Some of these customers aren’t even aware that they are performing high performance computing – they’re just seeing processing results a lot more quickly than ever before.

It should not be overlooked that along with the assumption of IBM’s x86 System x line, Lenovo also assumed control of IBM’s networking organization. . Although I understand why IBM relinquished control of networking products (IBM eschews selling commodity products), I will probably never understand why IBM would also relinquish control of the development teams within its networking organization that have deep software-defined-networking expertise. It seems to me that, as a systems builder, it would be desirable to have deep software defined expertise in systems, in storage, and in networks so that integrated software-defined offerings can be developed.

But IBM seems to be leaving software-defined-networking development to other parties – concentrating instead on software-defined systems and storage. That means that Lenovo has a real opportunity to build compelling cross system/storage/network software defined offerings if it wishes to – this could become an important differentiator for Lenovo and is thus a space to track over time.

As for enterprise storage, Lenovo already has marketing agreements in place with EMC – and as part of the System x acquisition Lenovo can now sell IBM Storwise products as part of its Flex System environment. It will be interesting to watch Lenovo’s storage strategy develop – will it hold tightly onto enterprise storage systems from IBM – or will it use software-defined storage to develop its own competing enterprise storage subsystems. My bet is that they will focus more strongly on working with the established storage vendors – and focus their research/development spend on server and networking products.

On Final Note: Investment

While at Lenovo, the entire cadre of research analysts who attended this conference were taken on a facilities tour. Lenovo is spending heavily (in the hundreds of millions of dollars) on modern, up-to-date, push-the-envelope research and development facilities. Lenovo will need to see a return on this investment – and I suspect sooner rather than later). I base my opinion on a sense of urgency that I picked-up when discussing Lenovo growth with various individuals at this event. There was a distinct make-it-happen-now attitude that I picked-up from various speakers and in side-discussions with product managers, strategists and development personnel.

Summary Observations

According to Adalio Sanchez, Lenovo’s competitors are focused on trying to become systems/software services integrators – offering their own infrastructure and cross server management environments, extensive consulting, and cloud services. Lenovo, on the other hand, sees its position as far less grandiose: the company wants to be identified as neutral (Switzerland-like) hardware/services vendor that will work closely with any partner in order to help Lenovo customers build optimized business solutions.   Lenovo sees its approach as simple – while its competitors’ approaches are far more complex.

The company sees its core strengths in the x86 server market as innovation and scale. It believes that it can build unique server/storage/networking offerings that will be able to execute workloads more efficiently than its competitors’ less scalable, lower memory distributed server offerings. To illustrate this point, a speaker from SAP who presented at this event described all of the joint development activities that are taking place between Lenovo and SAP with respect to implementing optimized SAP HANA in-memory systems. SAP has chosen Lenovo as its premier partner for HANA in-memory database deployment because of Lenovo high-end System x server hardware and associated large memory facilities. SAP also uses System x hardware for its own HANA Cloud service platform.

After attending this conference, I am now more firmly committed to my stance that Lenovo will become the world’s leading server maker in five years. Much work lies ahead – but the company’s no-nonsense leadership combined with highly innovative technologies will serve as the catalyst for Lenovo’s becoming the number one volume server vendor by 2020.

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