Why Lenovo and IBM are looking good

IBM Corp.’s sale of its low-end server unit to Lenovo will benefit both companies when the deal is complete. Lenovo agreed to acquire the unit for US$2.3 billion, and Lenovo expect the deal to close by the end of this year. There are short-term roadblocks in the near term, but when the deal closes, customers will benefit. Lenovo will soon offer more than just desktop and laptop computers to businesses. IBM will be more focused on enterprise software solutions as it moves away from hardware.

Security a concern

The server sale may face delays in the near term. The companies need CFIUS, or the Committee on Foreign Investment in the U.S., to review the transaction. Spying and hacking by China is adding to the sensitivity around approving the deal.

IBM needs to refocus

IBM’s growth plans rely heavily on the company divesting itself from hardware. The company realizes that cloud computing will dictate growth for IT in the next decade. This includes storing, accessing, and analyzing data stored on internet-accessible servers.

Competition in the cloud computing space is high. Google, Amazon, and Oracle all offer some form of cloud-based solutions. Pricing for Amazon Web Services is highly competitive. For example, Amazon offers flexible pricing for a range of website functionalities, from data sharing to hosting applications.

IBM was reported by IDC as being the top preference among providers they believe can most effectively provision IaaS, whether private or public. Customers prefer IBM as an integration service provider. With spending expected to rise by 15 percent annually, IBM will be a big player in all the technology involved between legacy infrastructure and cloud services.

SoftLayer excels

IBM’s SoftLayer, the cloud IAAS (infrastructure as a cloud) unit, runs seven data centres worldwide. It has over 25,000 customers, with which over 200,000 servers are under IBM’s management. By the end of 2014, there will be 25 data centres.

Lenovo set to excel in server hardware

The low-end server unit is a low margin business that Lenovo will likely turn around. The firm may leverage the customer base in the personal computer division. Profitability will grow through higher volume hardware sales, something that IBM struggled with in the past.

Data mining will be an area for growth for IBM. In the mass computing and application space, IBM’s staff is talented in building complex data analysis for customers.

Lenovo enters mobile

Lenovo made another significant acquisition before its deal with IBM: it acquired Motorola from Google. By integrating the mobile unit with the server business, Lenovo will be a one-stop shop for providing all computing needs for customers. Looking strictly at the mobile unit, efficient manufacturing and supply capabilities by Lenovo might mean lower cost Motorola phones for consumers. The Moto G was already available at a lower average price than other smartphones. The unit just announced the Moto E, which lowers the price for smartphones even further.

Two giants set to grow

Better prospects will appear for both Lenovo and IBM. Both firms are focusing on their core competencies. This means better hardware choices from Lenovo, and better enterprise software solutions from IBM.