Friday, January 31, 2014

BOLO as Lenovo purchases IBM System x

 By Rich Ptak and Bill Moran

Reactions from the IT and business communities have been decidedly mixed since the announcement that Lenovo will purchase x86 business and associated infrastructure from IBM. Attitudes range from ‘It’s about time’ to ‘what’s going to become of System x?’ to ‘excellent move for both companies.’ And, as is to be expected, there are a number of self-protective entities that aggressively push the idea that any purchase should be put off or moved to a different vendor until after the deal closes. While, as in any deal, almost anything can happen, we remain highly skeptical of 'do nothing' recommendations.

However, life, and business must continue, and purchases made for good reasons can’t, and shouldn’t be delayed. Good sense and governance dictate that potential outcomes be considered, risk assessed and decisions made. The important thing is to have and follow a plan of action. If you do that and maintain an awareness of ongoing IBM and Lenovo activities, commitments, announcements, etc. you will be able to minimize, if not avoid, any problems.

There are ‘be on the lookout’ (BOLO) issues that one should to consider and weigh. Here’s our take on the major concerns that have been expressed: 

Lenovo ownership will be nixed by US Committee on Foreign Investment

Possible, but we think not very likely for several reasons, for example, early on Lenovo involved legal advisers to help prepare them for the review process. Neither IBM nor Lenovo are neophytes at negotiating the tricky waters of getting Federal approvals through committees. There were no problems in the earlier acquisition of IBM’s PC business. Trade relations between China and the US are in very good shape. Finally, there are the facts that Lenovo is the ONLY company building PC’s in the US today, and they have already said they have no plans to move existing support teams. 

Lenovo ownership will negatively impact customers/service/quality

Very unlikely, the acquisition and development of the IBM PC and laptop division, and excellent execution, led to Lenovo achieving the number 1 spot of PC vendors. Customer satisfaction, manufacturing quality and reliability have all remained high. They enjoy a great track record with customers. Fully committed; fully capable.

This acquisition significantly improves Lenovo's competitive position in the enterprise market with a strong, diversified x86-based family of products. With the X6 servers that IBM just announced, they will have an industry-leading set of products. They also get an experienced, established workforce for all aspects from executives to front-line staff in design, manufacturing, sales, marketing AND support. They also have an IBM agreement to backstop them in the support area. All ready to plug into their own established distribution system. Following the blueprint laid down and executed in the PC acquisition greatly increases the odds that the transition from acquisition to integration will be equally successful.

Is the x86-base declining?

Lenovo is eager to enter and serve the x86 market segment. This acquisition equips them with experienced assets, resources and presence to compete in the market immediately. A good portion of the identified server opportunity lies in emerging markets including China. As these economies recover, Lenovo is positioned to benefit. 

These products are designed to meet the needs of a significant market segment. Serving that market supports a strategy that perfectly aligns with Lenovo’s commodity oriented business model. IBM just recently announced a full range of products using the latest X6 technology. These are market leading products, with performance and capabilities that are far ahead of the competition. They are the result of IBM’s multi-year, multi-billion dollar investments to enhance and extend the platform that Lenovo can exploit. They announced new software solutions for these platforms available today and into the future targeting specific industry needs. Practical experience demonstrates that for reasons ranging from security to reliability to availability, cloud is unlikely to drive stand-alone systems from the market. 

Can we depend on a Chinese owned Lenovo?

Today, in just the computer market alone, between 20% and 60% of the most critical components are outsourced to manufacturers in China. The percentage of Chinese-manufactured components in communications devices (smartphones, mobile, phablets, etc.), entertainment (games, TVs, radios, sound systems, etc.) is even higher. Lenovo could address the issue, if it is raised, by maintaining manufacturing in the US. Despite some fear mongering, this just doesn’t appear to be a critical issue. 

What should I do about IBM systems on order? Should I be concerned with buying IBM x86 servers during the transition? 

There are both long term (get these resolved before the deal closes) and short term (address immediately) issues.
Let’s start with the ones you need to begin to address immediately:
  1. Before presenting your plan to your executive team, re-examine existing orders and contracts (with IBM support, if necessary) to assure that everything is in order and will process without complications. Don’t risk a delay over administrative issues.
  2. If you are considering long term contracts don’t sacrifice good business sense by voiding existing contracts or entering into short term relationships. Evaluate and make your decision on what’s known, what can be known and what makes sense.
Long term and before the deal closes, you should:
  1. Make sure to get a clear plan from IBM that details what happens to your equipment and agreements as they transition to Lenovo. Be certain you understand what needs to done and by whom. Also be sure to review this plan with Lenovo.
  2. Contact your key ISVs and channel partners to gain a clear understanding of their relationship and plans for the Lenovo environment.
  3. Where Lenovo and IBM equipment will be co-located and co-dependent make sure your have a clear understanding with both IBM and Lenovo over who is responsible for what.
We expect IBM and Lenovo will manage this transition well and make every effort to avoid any client issues related to support and maintenance. That will certainly be a top priority.
Finally, be sure you are actively engaged with your senior management team to keep them aware of your plans, activities and the status over time. Without a doubt, they are being approached by IBM/Lenovo competitors trying to pressure them into making immediate decisions in response to the acquisition. It is in your best interest to make sure your management is aware that you are in control of the situation, that you have a plan and there is no need to get stampeded into a hasty decision.