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IBM to meet customer needs with IaaS, says IDC

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(Source: IBM)

27 January 2014

IBM sold its x86 server business to Lenovo because it could not build the scale it required to be a market leader, and because it believes that it can and should address most of the infrastructure needs of its customers with IaaS cloud services, according to  research manager, Servers, at IDC Europe, Giorgio Nebuloni.

Nebuloni said that Lenovo stands to benefit significantly, in areas such as technology IP, customer base, skilled salesforce, channel relationships, and brand recognition, and IBM will benefit by being able to concentrate on the high-end server business, where margins are better and less dependent on volume. The analyst also said that IBM may benefit from “long-term joint work” in areas such as x86 blades, Power and System z mainframe environments and perhaps storage blocks.

“In EMEA,” said Nebuloni, “IBM is the third largest supplier of x86 servers after HP and Dell, with a market share of 13% and revenue of around $900 million (€656 million) in 1Q13–3Q13. In its before-acquisition status, Lenovo had less than 1% market share in EMEA in both units and revenue.

“This means that a new Top 3 vendor is potentially born out of this deal as far as Europe and EMEA is concerned. IDC believes that in EMEA, even more than the technology IP, in a single shot the deal will help Lenovo acquire customer base, skilled salesforce, channel relationships, and brand recognition.”

Neboloni said that while scale was in issue in IBM’s motivation, there were other factors too. “As confirmed in recent statements of intention, and with SoftLayer’s acquisition last year, IBM believes it can and should address most of the infrastructure needs of its customers with IaaS cloud services, competing with vendors like Rackspace, Amazon Web Service and Microsoft. On top of this, we estimate gross margins in the x86 area are in the 15%–25% range typically — and depend strongly on operational efficiency and volumes — versus 40%–50% in legacy higher-end servers and 70%+ in software, where IBM will continue to play. Even IaaS services itself — despite the widespread assumption of low profitability — might be more profitable for IBM.”

The analyst said that the impact for the channel should be minimal. “In a way, little will change for channel partners and customers in Europe, certainly in the medium term. Probably even more than IBM, Lenovo is a channel-driven company, with virtually 100% of current server sales achieved through distribution. We recommend IBM partners and customers avoid disruption to day to day work with the vendor, while at the same time using this as a window to assess their longer-term strategy in terms of infrastructure consumption (on-premises, off-premises, managed, etc.) as well as supplier framework. However, as the buyout is far from complete and in particular US regulators could pose hurdles, IDC advises against any rushed moves in any direction”.

 

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