With two back-to-back blockbuster deals, Lenovo, the Chinese PC juggernaut, hopes to forever change the IT landscape’s balance of power. Over two weeks in February, Lenovo revealed its post-PC blueprint for IT domination that includes doubling down on mobile, client and the data centre.
Lenovo’s $2.91 billion purchase of Google’s Motorola Mobility smartphone business, following its $2.3 billion acquisition of IBM’s x86 server business the week before, opens the door to lucrative new opportunities to grow business, channel partners say.
Frank Triantafyllou, managing director of Complete PC Solutions in Melbourne, says it’s good news for the channel. “When a client goes for Lenovo, we can sell everything from one vendor: the servers, desktops, laptops – the whole infrastructure.
“I believe it’s going to benefit Lenovo because traditionally we have end-users that want to buy products from one vendor. In the past the only option was HP or Dell. It was IBM until they sold off their PC division to Lenovo. By Lenovo buying the server division it puts them against HP and Dell in being able to offer every product – PCs, server, laptops,” adds Triantafyllou.
Lenovo is widely seen as extremely channel friendly. According to CRN US, more than 80 percent of its $5.5 billion North American commercial sales are led by partners. These resellers say Lenovo is lining up its IT ducks and is poised to be a channel giant empowering partners to go head-to-head with HP, Dell, Samsung and Apple.
A fortified Lenovo means trouble for its competitors, says Frank Gillett, an analyst at Forrester Research. “This is a critical step for Lenovo to make good on a promise to build an ecosystem and cloud platform with a complementary product portfolio. Lenovo is the first IT company to offer a full range of IT solutions from the smartphone, tablet, laptop and data centre. Dell is not there, HP is not there, and neither is Samsung,” Gillett says.
If both deals are approved, overnight the world’s No. 1 PC maker becomes the third largest smartphone maker, behind Samsung and Apple, according to Counterpoint Technology Market Research, and the third largest x86 server maker, behind HP and Dell, according IDC.
Maree Lowe, director of Sydney-headquartered ASI Solutions, says, “This gives the channel more reason to sell to both enterprise and SMBs. It means more margin if resellers cross-sell. Lenovo’s strong channel model will allow resellers to offer more services. Many resellers know the Intel server platform and this relationship strengthens these ties.”
There’s an upside for partners selling Lenovo into the enterprise, says Lowe. “They will look for servers that are both robust and powerful so I think the IBM-Lenovo acquisition will bring a new group of clients to Lenovo.
“Culturally, there will be challenges as the server and mobility operations are very different beasts. The strategic areas that Lenovo has to be focused on would be product planning, R&D investment, clients’ roadmaps and inventory management,” she adds.
“Service capability and service-level contracts are key to success in the server sales area. Lenovo will need to promote and engage in other partner alliances. They should continue their partnering with
IBM in software and application development and high/mid-range server promotion,” she adds.
Challenges aplenty
Lenovo partners also concede that the Chinese computer maker faces unique challenges. For starters, CRN US reports that Lenovo’s North American channel of 25,000 is comprised mostly of PC-oriented partners that are going to need to up their channel IQ to include mobility and servers. The same would be true locally.
As well as challenges with managing the channel and engaging customers, Lenovo faces the daunting task of integrating two new businesses.
Martin J Kosasih, operations & service delivery manager of Sydney-based Virtunet, says, “Managing two acquisitions at once can be a challenge, but Lenovo has a tradition of success in taking well-known brand names to the next level. These acquisitions require a well-established brand name to complement their desktop business.”
Lenovo’s Chris Frey, vice president of commercial channel sales at Lenovo, North America, is bullish that the Lenovo channel will quickly adapt to new challenges and opportunities. “I don’t know what the exact channel partner profile is. We have a lot of channel partners – both big and small. But nobody should ever underestimate Lenovo’s channel to deliver valuable solutions to the customer that complement today’s business needs for tomorrow. We have innovated and grown IBM’s ThinkPad business to help us become the leading PC maker globally,” Frey says.
A long road ahead
Aside from channel challenges, Lenovo faces an uphill battle putting Google’s money-losing Motorola Mobility division into the black. According to Lenovo, Google’s Motorola Mobility division lost $928 million in 2013, compared with a loss of $616 million in 2012.
Additionally, both deals are expected to draw scrutiny from US regulators concerned about security issues that loom over technology acquisitions by Chinese companies. That said Lenovo expects the deals to close in six to nine months.
Despite the long and bumpy path Lenovo faces to piece its empire together, partners say they are eager to grow their Lenovo business beyond laptops and PCs. As Lenovo reinvents itself as an end-to-end service provider, partners say their PC business will act as a springboard to selling other higher-margin products and services.
“Where there is a demand for extremely cost-effective servers to be used as part of either cloud and managed services, there will be an immediate take up of the Lenovo Server,” says ASI’s Lowe.
“As some clients experience spikes in their traffic due to their business needs, virtualised Lenovo servers will also be invaluable. These servers could form part of server subscriptions or IaaS-type service offered by service providers and data centres,” she adds.
The IBM x86 deal not only gives Lenovo IBM’s x86 server business but also gives Lenovo channel partners the ability to resell IBM’s Storwize disk storage systems, General Parallel File System software, SmartCloud Entry offering and elements of IBM’s system software portfolio, including Systems Director and Platform Computing solutions.
Along with IBM’s x86 line of servers, Lenovo acquires a deep bench of channel know-how from Big Blue. The deal includes the transfer of 7,500 employees including Adalio Sanchez, general manager of IBM’s System x business, IBM’s System x senior management team, the entire System x development team, and IBM’s System x sales and marketing operations, including channel managers and reps.
Stephen Leonard, general manager, sales, for IBM’s Systems and Technology Group, says: “This is a great opportunity for the channel to expand their capabilities and add value. Partners will be able to leverage and extend capabilities with IBM’s x86 server business and also leverage IBM’s portfolio of server, mainframe and storage products.
“We believe the combination of these three things will strengthen the channel and the power it has in the marketplace, giving Lenovo partners the ability to compete much more broadly and deeply,” adds Leonard, who will stay with IBM if the deal is approved.
Meanwhile, some partners say they are tempering their enthusiasm until they have a clearer picture on how Lenovo will be able to absorb IBM’s x86 channel partners without major hiccups and that many questions still need to be answered.
An IBM Premier partner, who asked not to be identified, says: “Lenovo just doesn’t have the channel tools and back-end systems to make this a seamless transition. How do we sell IBM Flex with Lenovo chassis? Will this impact my business? Until I hear more granular details about what the transition path is, the jury is still out.”
When asked about overlap between IBM and Lenovo channel partners, and the number of x86 IBM partners that might join Lenovo’s channel after the sale, IBM and Lenovo declined to answer.
Transforming for success
Since its founding in the 1980s, Lenovo has quickly evolved from a parochial Chinese electronics company based in Beijing to the world’s No. 1 PC maker with $33.9 billion in revenue. Perhaps its most pivotal moment in its rise came in 2005 when it purchased IBM’s ThinkPad business for $1.25 billion.
Since 2005, Lenovo has made a number of key acquisitions, including buying cloud-computing provider Stoneware in 2012. Also in 2012, Lenovo entered a joint server-storage pact with EMC to broaden EMC’s footprint in the x86-based server market and give Lenovo the ability to resell EMC networked storage solutions.
Over the last few years, Lenovo said it was committed to pushing what it called a “PC Plus Era” – where partners will start to see an emphasis put on Lenovo servers, services and mobile devices just as much as the PC.
Lenovo says the proposed acquisition of IBM’s x86 business accelerates its data centre plans by an estimated five years. Forrester’s Gillett says the purchase of Motorola Mobility helps save Lenovo up to three years in its plan to break into the US smartphone market.
“Motorola gives Lenovo valuable wireless carrier relationships, a mobile development team, stronger patent protection through licensing agreements with Google, and, most importantly, a recognisable name,” says Gillett.
Lenovo says that it will retain all of Motorola’s 3,500 employees and acquire 2,000 mobile patents. Yang Yuanqing, Lenovo’s chairman and CEO, has said he expects Lenovo to sell 100 million handsets in the year after it completes the Motorola deal.
The company made an important organisational change just days before it anted up $2.91 billion for Motorola Mobility. Lenovo said it would be reorganising into four distinct business groups based on specific technologies: think-branded PCs, mobile, cloud services and its burgeoning enterprise server business.
Gaining a mobile edge
According to ASI’s Lowe, “Mobility is the driver for everybody no matter what business we are in. So the acquisition of Motorola Mobility brings [Lenovo] to where the client is spending today. The mobile device is becoming more important than the notebook-tablet. The last thing people use a phone for now seems to be to make a phone call. It’s all about the apps and the user experience.”
Although there are obvious synergies between the IBM and Lenovo brands, there will be some hurdles with Motorola Mobility as they will be facing off against some powerful competitors.
“The challenge will be the Motorola brand,” says Virtunet’s Kosasih. “IBM has a well-established product that has a market. You wouldn’t expect their users to mind the change in name from IBM to Lenovo. I dare say they will keep the Motorola brand for their products; companies have tried in the past to acquire mobile businesses and have failed to integrate or develop products to compete against Apple and Samsung.
“Developing good quality products is not the only challenge: the key is for Lenovo to develop products that can entice the market to swing away from the current mobile leaders,” he adds.
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