On June 20, 2017, Lenovo launched the most comprehensive portfolio in its history—encompassing servers, storage, networking, software and data center services. The launch took place at Lenovo's Transform conference in New York and is expected to make Lenovo a formidable player in the data center domain. The launch, the first of its kind, introduced 14 new servers, seven storage devices and five new networking fabric products.
With a market share exceeding 22%, Lenovo is the global leader in PC shipments; however, it lags in the data center business. Data center business unit revenue decreased 11% YoY for the year ending March 31, 2017, and incurred an operational loss before taxation of USD 43 million. Even with this performance, Lenovo’s strategy remains focused on building the data center business as a new growth and profit engine, kick starting a transformation plan last year and bringing in the best talent from the industry. With this mega product launch, Lenovo’s goal of becoming one of the world’s top three trusted data center players looks realistic.
Data Center Market
The data center market typically includes server systems, enterprise storage systems and network equipment. Together, the market size was approximately USD 119B in 2015 and is expected to grow to USD 143B by 2020 with CAGR of about 5%. With the worldwide PC business slowing down, Lenovo views data center business as a growth opportunity.
For server system market share by revenue, Lenovo currently lags far behind the leaders HPE (24%) and Dell (21%) with only 6%. While in the Enterprise Storage Systems market, Lenovo doesn’t even feature among the leading six vendors. The market is led by Dell and HPE with a share by revenue of 25% and 15% respectively. Lenovo is not among the top five suppliers in the Ethernet switching market either. Cisco leads the pack by miles with a market share by revenue of 55%, followed by Huawei and HPE, both with a market share of around 6%.
Lenovo is already the market leader in the global PC market with a great reputation, extensive partner network, global reach and a strong enterprise client base. Post-acquisition of IBM's x86 server business three years ago, this is Lenovo’s biggest initiative in this segment. Coupled with this, they have started a transformation program to optimize their data center business, built a direct sales force, augmented channel and solution capabilities and are refining their hyper-scale business. These all show that Lenovo is very serious in achieving its goal of becoming one of the world’s top three trusted data center players.
The breadth of Lenovo’s ThinkSystem portfolio itself is impressive. It includes mission-critical servers, rack and tower servers, dense optimized and blade servers, mid-range and AFA storage, and Fibre Channel and Ethernet network switches. ThinkSystem is designed to support heavy workloads and is highly flexible. The server SR950 can be scaled from two to eight processors in a 4U form factor thereby enabling cost reduction. Lenovo has also ventured into new form factors like 2U4N with the server SD530. All-Flash and Hybrid SAN storage solutions offers best-in-class price and performance with five 9s of availability. Along with this hardware equipment, the ThinkSystem portfolio also includes XClarity Controller, a system management tool.
Impact on Procurement and the Incumbents
With the ThinkSystem range of products, Lenovo’s portfolio looks second to none. But there is a distance between launching products and converting those products to best-sellers. However, now Lenovo has the capability to offer end-to-end data center equipment. With this, they can cross-sell, improve the attach rate in server, storage and networking domain. Enterprise customers can now view Lenovo as a versatile supplier and have the option to bundle and procure various equipment from them. Building a direct sales team and revamping distribution channels also makes Lenovo a formidable competitor. All these may result in Lenovo gaining market share in the server, storage and network domain, incumbents can expect some sales erosion as Lenovo markets its products to enterprises aggressively.
Customers can expect better pricing as Lenovo aggressively tries to gain market share, and other incumbents offer better pricing to counter this. The shift to flexible hardware which can support varying workloads and can scale up to support mission critical workloads will intensify. The trend of software-defined storage architecture and hyper-convergence may further solidify with the launch of compatible, reliable hardware.
- Lenovo Annual Report 2017