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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.

Thursday, January 23, 2014

Finally, Lenovo buys IBM’s x86 server business

By Bill Moran and Rich Ptak



The rumors were right, we weren’t; Lenovo is buying IBM's x86 business. At a briefing this morning (1/23) IBM and Lenovo executives described the terms of the deal. An article on today's Wall Street Journal website includes comments from the Lenovo CEO[1]. The deal won’t close until the end of this year. Some US regulatory requirements, that could potentially delay the deal, will have to be met. So far we haven't seen comments from the IBM CEO.

Let's examine some known consequences of the deal. First, keep in mind that there are unknown situations and events that might occur before as well as after the deal closes. We will deal with the known unknowns, and not speculate on unknown unknowns (thank you Donald Rumsfeld).

The groups affected by this deal are as follows: 1) the two companies both individually and together, 2) employees of both companies but mosty the IBM x86ers, 3) the IBM x86management team, 4) the customers of IBM x86, and 5) HP and Dell, the major x86 competitors.

Let's discuss the effects on IBM first. IBM gains $2.1 billion in cash that can be invested in high growth, high-margin areas such as the new Cloud data centers IBM is planning, or to Power, Pure Systems, Watson or the new design initiatives. IBM sheds a low margin, high-volume business. IBM gets a healthy chunk of Lenovo stock, presumably the $200M balance, to meet the reputed total of $2.3B.

IBM retains the Pure Systems brand, and it will continue to create integrated systems by sourcing items from Lenovo. We anticipate that Lenovo will supply components to IBM more competitively than IBM can get them today because of Lenovo's larger and presumably more efficient supply chain. All good for IBM.

For Lenovo, they will have to integrate IBM’s business and assets into their own business model and operations. There exist risks in any integration; however, given their success with IBM's PC business, we view the risk as low. They enter the data center in a big way with clearly enhanced stature as an international competitor versus both HP and Dell. Lenovo walks away a big winner.

The entire deal faces some potentially significant risk in the regulatory approval cycle. Congress is always a bit of a wild card; however, both companies have been down this road before. We believe they know how to manage the approval process and getting it past the key US government players. It's unlikely the deal will get killed; but there remains a chance that key provisions will change.

For the IBM employees involved in the deal, we think that they will welcome the new opportunity. Between rumors and layoffs, the working environment for IBM x86 employees had to be both uncertain and stressful. IBM has not been growing overall; we expect the x86ers will welcome the stability and opportunity with the new owner.

Adalio Sanchez is the key player in the x86 management team. This aggressive executive led IBM's UNIX group to profitable business success before becoming the x86 General Manager. He persuaded IBM to invest heavily in the x86 as he skillfully leveraged the technology to grow the business. Also critical will be his moves against key competitors HP and Dell, where his record is one of forceful, direct action. We suspect that will continue at Lenovo.

The move presents significant personal opportunity for Adalio, tempered with the risk of fitting into the Lenovo culture. Tempering the risk, Lenovo’s CEO pointed out that the company currently already has five Westerners of twelve board members. This should smooth the path for a dynamic executive like Sanchez.

Perhaps, the most important segment of the world that needs to be happy with the new Lenovo are the customers of IBM x86. We expect that Sanchez will visit all his key customers to reassure them about the service and support that they will get from Lenovo. Lenovo's excellent track record with the PC will help in this task. Lenovo has significant credibility in the international market. Adalio Sanchez, as a very savvy executive, knows the right words and actions that soothe anxious customers. We will watch with interest to see how customer reactions unfold over the rest of the year. We expect not many will feel compelled to switch to competitors.

The obvious big losers from a strengthened Lenovo are competitors, HP and Dell. Both companies were disciplined as they trail behind Lenovo in PC sales. Lenovo enters a new market segment with excellent technology and able to leverage its existing supply chain and x86 experience. They can easily be envisioned as a more dangerous competitor than IBM. Dell appears particularly vulnerable and weakened because of the turmoil involved in going private.

In summary, this deal looks to benefit everyone involved except the competitors. The relationship between IBM and Lenovo is strengthened. Both look to become stronger individually. The executive team of the new Lenovo business unit is proven, experienced and aggressive. We expect they will continue to build new business for Lenovo.

Wednesday, January 22, 2014

IBM Upgrades/Innovates X86, Flash and more


By Bill Moran and Rich Ptak

Just out in a joint announcement Lenovo has agreed with IBM to buy X86 business.  See the announcement at: http://www-03.ibm.com/press/us/en/pressrelease/43016.wss Price is said to be at Lenovo's desired $2.3B. We'll be tracking and discussing the impact on IBM as things evolve.

 Congratulations to both; we'll post more shortly!

IBM’s latest announcements describe two major upgrades, one each for the X86 and flash products. While it might appear that an emphasis on Watson overshadows everything else, this reminds customers of IBM’s focus on IT infrastructure.
Excessive hype about Cloud as the wave of the future is leading some companies to believe they can ignore infrastructure. Any company doing so risks severe business embarrassment. We recently participated in a discussion about companies, with mainframes, that were cutting mainframe staffing to the point that they lacked sufficient resources to perform a new release upgrade. We all know that software always needs upgrading at some point. Therefore, those companies will suffer a rude shock when faced with the cost of a consultant to install upgrades. Of course, current management might be happy to take credit for successful (?) cost cutting as they leave the future consequences to someone else. IT infrastructure, both human and equipment, remains important. Let’s look at the products that IBM is announcing. New products were announced for:
  • System x 
  •  PureFlex 
  •  Storage
  •  Software Defined Environment
  •  System Networking
 The announcement does not discuss Power Systems or mainframe products.

System x
The key announcement is clearly the sixth generation IBM X6 platform delivering high-end server technology to IBM’s Intel-based offering. Compared with the older eX5, this new generation supports up to 3 times as much memory while delivering better reliability. IBM calculates that acquisition costs will be up to 28% lower than earlier comparable systems. The new rack design allows future technology upgrades to be made using the same chassis providing significant investment protection going forward. 
The new System x3650 M4, designed for Big Data workloads, leads the industry by supporting up to 56 terabytes of storage. The additional capacity combines with enhance performance and energy efficient operations make especially attractive for scale-out of Big Data clusters.
Enhanced with the new Intel Xeon E5-2400 v2processors, the IBM System x3630 and the x3530 M4 General Business rack servers feature 25% more cores and deliver up to a 21% performance increase over the previous generation. They are designed and optimized to facilitate faster data analysis and business decisions.

PureFlex Solutions
IBM introduced several notable PureSystem and Flex offerings. The Flex System x880 x6 Computer offers the new x6 architecture for faster database performance and more scalability. The existing x240 Compute node is enhanced with new Xeon E5-2600 v2 series chips.  Modular configuration for IBM Power and Flex systems allows more flexibility and savings. Compute and storage books can be swapped out. Upgrades to new generations of memory and processors fit into existing chassis further reducing costs and overhead. We must mention IBM PureSystem's 98% performance advantage over HP’s performance on the SPECvirt_sc2013 benchmark released last year. (To be fair, HP ran their test before the release of the latest INTEL chip used by IBM. Still, the difference is there.)

Finally, there are new PureFlex and Flex application specific offerings. These include:  IBM System x Solutions for:  SAP Hana on X6, Smart Cloud Orchestrator, VMware Cloud, Microsoft Exchange and SAP NetWeaver® Business Warehouse Accelerator.

Storage
In storage, the big news is a new set of new flash offerings offered for data centers as both standalone arrays and as complete solutions. The IBM FlashSystem 840 solution offers capacity ranging from 4-48 TB, is field upgradeable, fully redundant and hot swappable. Read latency is 135 ┬Ásec; write latency is 90 ┬Ásec. Bandwidth scales to 8GB/s, and performance is up to 1.1 million IOPS. IBM offers multiple flash alternatives to assure maximum performance.  These can be attached to SANs over Fibre Channel, InfiniBand or FCoE, but cannot connect via iSCSI.

Also new is the FlashSystem Enterprise Performance Solution, which couples the FlashSystem 840 with IBM's Storwize SAN Volume Controllers.  This solution offers a suite of advanced storage services including IBM's Real-Time Compression and storage virtualization.

Separately, the IBM eXFlash memory-channel storage is a dramatic innovation that connects flash on a DIMM directly to the X6 system’s memory bus. This enables larger virtual machines with greater performance by providing the server with a larger cache. Database transactions can also run faster. 

IBM announced an innovative new acquisition model for the IBM XIV Storage System that we believe will be attractive to Service Providers. Customers can now install a full XIV storage array in advance of growing workload needs.  These XIV systems include full authorization for use of the entire system's performance and capacity; however, the initial payment is only 60% of the first frame's price.  As storage needs grow, IBM delivers additional frames (typically when utilization reaches 70%) for just $1 plus any remaining payments for the prior frame.

Working with IBM's financing unit, this model can also be used with clients who prefer the benefits and flexibility of leases -- often resulting in even lower cost and OPEX/CAPEX flexibility.

Software Defined Environment
Using software to define the datacenter network (SDN) is increasingly accepted. Interest is spreading to include systems and servers. Users see great value in the flexibility resulting from defining an environment with software. One advantage is better utilization from fast, flexible resource allocation and configuration. Automating workload allocation and assignments combined with a software defined environment (SDE) have the potential for multiple benefits e.g. improved performance, reduced costs, etc., all issues for companies anticipating future cloud and hybrid cloud investments. 

As more companies are using OpenStack as a foundation for cloud environments, they want automation for maximum flexibility in using cloud resources and to reduce admin overhead. In response, IBM’s Platform Resource Scheduler delivers dynamic resource management for IBM OpenStack clouds. The result is better service and management using proven technology from their acquisition of Platform Computing.

System Networking
IBM System Networking RackSwitch G7028 is the newest member of the System Networking Family.  It has 24 Gigabit Ethernet ports to connect servers and storage to 10 GbE environments.  Port airflow configurations are compatible with System x, Power, Flex System and BladeCenter.  It is targeted to the needs of small and medium-sized business. For more details on its configuration and performance please visit:  http://www-03.ibm.com/systems/networking/switches/rack/g7028/index.html.

Summary
The announcement focused on the new generations of the X86 servers and flash memory innovation. Though IBM only recently acquired flash technology, they are clearly intent on making significant investments on both flash and X86. Rumors may persist about IBM selling its X86 business, but clearly there is no evidence of that as reflected in IBM’s ability to and interest in innovating with the technology.  

Given Lenovo's success and customer satisfaction after acquiring IBM's PC business, we expect that customers will benefit from past efforts and investment by IBM.