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Lenovo

Dell’s planned takeover of EMC a threat to Lenovo’s global enterprise plans

PUBLISHED : Sunday, 11 October, 2015, 2:48pm
UPDATED : Sunday, 11 October, 2015, 2:48pm

Chinese technology giant Lenovo’s goal of building a US$5-billion-a-year global enterprise business faces a strong challenge as personal-computing rival Dell attempts to take over storage-systems titan EMC.

Dell’s proposed merger with EMC, first reported last week, has been estimated to cost between US$50 billion and US$60 billion, which would make it the biggest technology deal of all time.

It follows last month’s announcement in Shanghai by Michael Dell, the founder and chief executive of Texas-based Dell, that it would invest US$125 billion over the next five years in mainland China, the privately held company’s second-largest market after the United States.

Bernstein Research senior analyst Albert Moel said a Dell-EMC merger would have a negative impact on Lenovo, which was restructuring operations as it integrated two recent acquisitions – Motorola Mobility and IBM’s x86 server business.

“I think they have their hands full,” Moel said.

Lenovo, the world’s top supplier of personal computers, unveiled in August a sweeping restructuring plan costing a total of about US$900 million, which included cutting 3,200 non-manufacturing jobs and writing off smartphone inventory worth US$300 million.

A potential merger of Dell and EMC would likely dissolve Lenovo’s existing reselling relationship with EMC in China
Krista Macomber

The initiative was expected to reduce Lenovo’s expenses by US$650 million in the second half of its fiscal year, to the end of March next year, and by US$1.35 billion on annual basis.

Lenovo, which has businesses in more than 160 countries, is currently beset by a slump in the global personal computer and tablet markets, as well as intense smartphone competition and slowing economic growth on the mainland.

Krista Macomber, an analyst at US-based Technology Business Research, said the challenge for Lenovo was that “it had limited storage and networking competencies” to compete effectively in supplying key infrastructure used in data centres and other enterprise accounts.

“A potential merger of Dell and EMC would likely dissolve Lenovo’s existing reselling relationship with EMC in China, which Lenovo has leveraged to further increase its presence in small and medium-sized business accounts in the country by facilitating more complete [enterprise] solutions,” Macomber said.

Lenovo and EMC, the world’s largest supplier of enterprise storage systems, initiated a partnership in 2012 that included an x86 server development technology programme in China, as well as a deal for Lenovo to manufacture and resell EMC’s network-attached storage products.

“Lenovo is working quickly to build in-house storage and networking expertise, including launching the company’s first storage arrays in May of this year, but it still has a way to go to catch up to what would be the combined forces of Dell and EMC,” Macomber said.

She added that Dell’s recent US$125 billion investment commitment in China “portends a stronger [business] footprint for Dell in the country, which would be further bolstered by the addition of EMC’s enterprise-storage credibility”.

Bernstein’s Moel, however, said Lenovo had another storage-systems-related cooperation project with IBM that was “reasonably competitive and more aligned with Lenovo’s acquired server expertise”.

Yang Yuanqing, Lenovo’s chairman and chief executive, said in August that he remained confident the company’s enterprise business group – comprising storage, servers, software and services – would realise US$5 billion in revenue a year after closing its US$2.1 billion purchase of IBM’s x86 server business.

Lenovo tied with networking equipment giant Cisco Systems as the world’s fourth-largest supplier of servers by revenue in the quarter to the end of June, according to IDC. Lenovo posted a 556 per cent year-on-year increase in server sales to US$949 million for a 7 per cent global market share, with China its biggest market for servers.