This is simply the next logical step after IBM sold the PC business to Lenovo.
The problem is that Intel X86 architecture based products are commodities, with commodity pricing and razor thin margins. They are fungible: given the same specs, it largely doesn't matter whose name is on the box, and the purchase decision comes down to price. In that environment, lowest cost producer wins, and IBM isn't and can't be the lowest cost producer.
As the market for servers developed, things like dedicated rack servers emerged, and later blade servers. In the early stages, they provided added value that customers would pay more for. Those innovations are now standard and widely available, and don't command a price premium. Servers are commodities just like destops and laptops. (At a former employer, we were adding rack mounted servers at a rapid clip. I preferred HP for reliability, and so did my boss, but Dell got the nod because they were cheaper.)
It made perfect sense for IBM to sell the server lines to Lenovo, and for Lenovo to buy them. IBM can't make money on the hardware. Lenovo can.
The question is whether Lenovo can maintain the needed level of quality and reliability, and it's a safe bet that they'll certainly try to. The market still has higher expectations for reliability and useful life on server products than it does for PCs and laptops.
Does the market benefit from commoditization of servers? Sure. It lowers costs and increases what the market can do with servers, because server based computing becomes more affordable. It's another instance of the same forces that made the PC ubiquituous. The barrier to most things that might be desirable is what it will cost to do them, and as costs drop, more things happen.
@rick merritt: I wonder if Lenovo will use this heft to start competing for the big data center business at Google, Amazon, facebook, et al.
I should think so. X86 server hardware is now a commodity with commodity pricing, and you have to sell huge numbers to make any money. Big data center outfits like Google and Facebook are logical potential customers.
But they'll need to be able to customize: Facebook, for example, has specific ideas of what they need in a rack server that an off-the-shelf model might not match.
There is a big opportunity there to serve the market of big cloud and data center providers like Google and Facebook--one that IBM did not tap. Lenovo seems like an ambitious enough vcompany, and one that is dedicated in the longer term to the x86 market. IBM had been trying to get out of that market for some time, they just seemed to not be able to agree on the valuation of the unit.
@DMcCunney: I think Foxconn and Quanta have the inside track on the big data center server busienss these days. Anyone know how well set up Lenovo is with its own board and system manufacturing? Are they winning these big data center deals?
@rick merritt: I think Foxconn and Quanta have the inside track on the big data center server busienss these days.
Possible. I don't know. For example, I think of Foxconn as doing assembly of consumer products like iPhones, and don't have a good feel for what other pies they may have fingers in,
If I'm Facebook or Google, I'll give preference to people who are established server manufacturers, like Dell or HP. Servers have higher reliability requirements than consumer products, because server failures cost more to those who run them. Since both of those have manufacturing done in China to get lower costs, the question becomes who does it for them? Do they have wholly owned facilites, or are they contracting out in an OEM deal? (I bet on the latter.)
If Lenovo can offer the pricing desired, selling a line of already established servers, I think they have a shot.
@DMCunney, it is very appropriate that you mention Facebook and Google, and you can add other cloud vendors to the list. They are building their own servers, cutting the 'established' vendors out of the loop. Given this, what IBM is selling is definitely a commoditized business with only the customers who aren't virtualized ... yet.
@LarryM99: They are building their own servers, cutting the 'established' vendors out of the loop.
I think it's fairer to say they are designing their own servers. Neither Facebook nor Google is really in the hardware business (though Google is dipping its toes into those waters.)
If Facebook decides it needs another data center with 10,000 servers to meet demand, they'll contract with an OEM partner to supply them. So will Google. But both will have specific ideas of what they want the servers to be, and will present a set of specs and designs the OEM will be expected to work from.
The question is who the OEM partner(s) will be, and the answer will probably be "Whoever offers the best price, with a track record that assures us they can build systems at that price that will meet the specs for reliability."
HP and Dell will gain shares at least in the US market for a period of time. In the other market, Lenovo may not gain share either even with IBM's name for some period of time. HP and Dell cost base is not much higher than Lenovo's since both of them have manufacturing (ODM etc.) in the Far East. Lenovo was able to gain PC share due to its home market in China, which is much larger than the US market (4.5 times of US population), consumers like to buy product from their home manufacturers; yet, its PC revenue is no more than HP PC sale, the total profit is about 10% of HP's. IBM really should work on 'low margin' business; that is the future of this business. If not, IBM's revenue will continue to shrink, eventually will become irrelevant in the field. Besides, America needs this kind of manufacturing jobs.
@HangLai:Besides, America needs this kind of manufacturing jobs.
Forget it. That sort of thing migrated to China for lower costs, and won't come back in that form. The market simply won't pay what it would cost to do it here.
If that sort of manufacturing does come back, you can assume it will be robotics, with machines doing the assembly. No one will pay US wage scales to have that done by human beings. There will be jobs created, but they won't be the unskilled/low skilled jobs that made assembly lines popular employment. The new jobs will be programmers for the robotics and techs to maintain them, and a factory using robotics to build this stuff will employ a fraction of the work force and old style factory did.
@selinz: It's unfortunate to hear that the company that was arguably the greatest developer of electronic hardware will exist the hardware business completely.
Well, they haven't yet, and I don't expect that to happen for some time.
But you can look at it as another facet of the forces that made various vendors go "fabless". As hardware becomes a commodity, it becomes increasingly difficult to make money selling it, and as the costs of building the plant to make the hardware skyrocket, it becomes increasingly difficult to justify the capital expenditure.
Even someone like IBM will say "We can't make money doing this, so why continue to do it? Sell the business to someone else."
IBM will increasingly develop designs someone else will actually build, and make thier money licensing the IP.
I don't really think that's sad - just the natural life cycle of the business.
The Other Tesla David Blaza5 comments I find myself going to Kickstarter and Indiegogo on a regular basis these days because they have become real innovation marketplaces. As far as I'm concerned, this is where a lot of cool ...