In July, I wrote a report entitled Huawei Takes On The Global Enterprise Market, which outlined Huawei’s ambitious targets to diversify into the global enterprise market. This morning (August 1), Lenovo announced a strategic partnership with EMC in Beijing which shows that it has similar ambitions to broaden beyond its current base of business into the global enterprise market. There are three key components of the partnership:
- Joint server development. Lenovo and EMC will form a server technology development program to develop X86 server products. Lenovo will ship these servers (likely Lenovo’s ThinkServer brand, announced in June 2012) to the global enterprise market. As a next step, EMC will integrate Lenovo server products into its existing storage product line and offer them to its global customers.
- Lenovo will OEM and resell EMC storage products. Lenovo will OEM and resell EMC storage products as part of its enterprise product portfolio. Sales will start in the mainland China market and gradually extend out to the global market as part of Lenovo’s enterprise vision.
- A joint venture for NAS products. EMC’s Iomega division will be put into the new joint venture, of which Lenovo owns 51% and EMC the remaining 49%. The JV will produce NAS products targeting SMBs and branch offices for large enterprises.
I believe that there are several key implications from this new strategic partnership:
- The partnership provides a boost that will help Lenovo develop X86 server products targeting the global market. Lenovo’s existing server business is mostly based in China. With the new ThinkServer brand, it is looking to enter the global market. In the past 12 months, EMC has accumulated experience from a previous partnership with Dell and recruited server talent from IBM.
- EMC may leverage this relationship to create an EMC-branded appliance. The current arrangement only shows that EMC will integrate Lenovo server products to complement its storage product portfolio. But considering that major competitors IBM, Oracle, and HP are all announcing appliance products in the market, EMC may use the JV to follow suit.
- Lenovo’s OEMing and reselling of EMC storage products will enhance its enterprise product lineup. With Lenovo’s strength as a leading local player in the public sector and state-owned enterprise market in China, EMC will also benefit from this OEM/resale agreement in the Chinese market.
- EMC can focus more on the high end of the enterprise market. The Iomega division hasn’t generated much news since EMC acquired it. Positioned in the low-end market, there was little synergy to leverage EMC’s high-end storage lines. The JV will not only help Lenovo at the entry level of the market and with “know-how” in the storage market, but will also help EMC spin off the Iomega division to focus more on key competitors.
- Partnerships between multinational (MNC) vendors and Chinese firms are works in progress. There have been a number of similar partnerships between Chinese and MNC vendors before, such as the Huawei/Symantec JV that ended in November of last year after three years. Cultural differences have always been a big challenge for effective communication and execution between partners in cases such as this one.
The bottom line: The partnership seems to give both Lenovo and EMC what they want: Lenovo gets a boost as it eyes the global enterprise market and EMC gains a stronger footprint in China as well as a new partner at the lower end of the storage and server market. I believe that the partnership makes sense for both vendors, but recent history shows that it takes time to evaluate the outcome of any partnership between a Chinese vendor and a MNC vendor.