IBM Licenses Server Technology To Lenovo

IBM is looking to expand its reach into the small and midsize market with an agreement to license its x86 server technology to Lenovo.

The two vendors said that Lenovo plans to build one-processor and two-processor servers based on IBM's System x server technology.

The new agreement covers rack mount and pedestal servers, but not blade servers, said Rich Hume, general manager for modular systems in IBM's Systems and Technology Group.

Under the agreement, Lenovo, of Morrisville, N.C., will manufacture and sell Lenovo-branded servers based on the IBM technology, Hume said. IBM, of Armonk, N.Y., will continue to manufacture and sell its own similar IBM-branded servers based on the same technology. Neither company is manufacturing servers for the other, he said.

In addition, IBM will support Lenovo's server sales with financing and maintenance and other services.

Just as important as what the agreement includes is what it does not include, Hume said. IBM is not exiting the server market, and is not exiting the one-socket and two-socket server business, he said.

Instead, Hume said, the agreement is a way for IBM to extend its System x server technology to a wider part of the small and midsize business market, and focus more of its business in that part of the market.

The move follows a reorganization of IBM's Small and Midsize Business Group and a complete makeover of its PartnerWorld conference earlier this month in order to better focus its resources for customers in the SMB market.

"IBM's share in the smaller business server market is in the mid-high single digits," he said. "Lenovo has a great reach with its partner net. This deal incents Lenovo to participate in the under-500-person company market, and the midrange market."

Hume said IBM's intent is to find a way to take its technology into what he called the "white space" of the market where IBM currently does not have a significant footprint. "We chose to partner with Lenovo since they bought our PC business," he said. "We will go in the same direction with the x86 server business. The intent is to engage in a part of the business where we currently don't participate."

The deal is a win-win for both vendors, said Bob Venero, CEO of Future Tech, a Holbrook, N.Y.-based IBM and Lenovo channel partner.

"In the small business market, Lenovo has a lot more feet in the street," Venero said. "IBM has just increased its sales team with Lenovo."

Just because Lenovo comes out with servers based on IBM technology does not mean solution providers will bite.

Next:Solution Providers Weigh In On Lenovo's Prospects

Todd Barrett, director of sales for the security and networking division of CPU Sales and Service, a Waltham, Mass.-based Dell and Hewlett-Packard server partner and Lenovo mobile PC partner, said that Dell and HP are both very entrenched in the server market.

"It's very competitive," Barrett said. "Everyone seems to like them, especially HP servers. It's tough to break into this entrenched world."

While CPU sells Lenovo's ThinkPad mobile PCs, Barrett said he expects Lenovo server sales to be an uphill battle for mindshare. "I'm not interested in going out and starting with another server product line," he said.

Hume said that the agreement between the two vendors has incentives to prevent the two companies from bumping into each other, but he declined to discuss details. "Lenovo will be focused in markets we're not in," he said. "And Lenovo's reach into tier-two customers is broader than our own. This agreement should allow our business partners to expand their reach."

Lenovo, which in late 2004 acquired the PC Division of IBM, including the ThinkPad line of mobile PCs, already has its own line of x86-based servers, but is currently selling them only in China. With this agreement, Lenovo will make its new IBM technology-based servers available worldwide.

When Lenovo decided to expand its server business, it could have used its own server technology as the basis for that expansion in light of the fact that servers have become a commodity business.

Marc Godin, vice president and general manager of Lenovo's server business unit, acknowledged that this is indeed the case. However, in response, Godin only said that IBM was the right partner.

"The advantage of working with IBM's technology is that it is an effective and proven technology worldwide," he said. "We're getting access to a line that is manufactured and sold around the world. We concluded that they were the right partner for us."

Both IBM and Lenovo said that, contrary to what some industry watchers believe, the two vendors never put in place an agreement restricting Lenovo from selling servers outside of China. "There's nothing in our legal agreement to stop Lenovo from bringing servers in," Godin said.

At the end of the day, the big question is, why doesn't Lenovo introduce a line using its own technology, Venero said. "It would be a challenge for them vs. taking a known technology into accounts," he said. "It's like in mobile PCs, where it's easier to walk in the door with a ThinkPad than, say, a Lenovo 3000."

For IBM, it is a chance to expand it business with Lenovo, Venero said. And Lenovo gets in the door by talking the IBM brand. "And maybe Lenovo can eventually use it to bring in their own server technology," he said. "Just look at the ThinkPad. Lenovo is now bringing in its own line as well."

How the agreement affects the channel will depend heavily on the difference between the two vendor's server lines. "What's going to be the price delta?" Venero said. "Is this going to be a price war? If there are two identical server boxes, one branded IBM, one branded Lenovo, what's the delta? IBM has more overhead in general."

Details about pricing and packaging were not discussed by IBM or Lenovo, as the first products from the relationship are expected to be rolled out late this year, with general availability expected to start in the first quarter of 2009.

The IBM/Lenovo technology licensing agreement is slated to last for four years.