Lenovo, SAP join forces on cloud initiative in mainland China

Lenovo Group is looking to advance its data centre business in China through a major cloud computing initiative with Germany’s SAP, the world’s largest supplier of business management software.

The two companies are to jointly announce on Wednesday an agreement to deliver in the first half of this year a new cloud service for large Chinese companies on the mainland that use SAP’s Hana database technology.

“SAP’s selection of Lenovo to partner in delivering its enterprise cloud for SAP Hana in China – as well as the trust and confidence implied in this decision – serves as compelling proof of our industry leadership capabilities in this rapidly expanding market segment,” Peter Hortensius, the chief technology officer and head of strategy at Lenovo’s data centre group, said in a statement.

The deal marks an extension of a strategic alliance formed between the two companies in January last year to help develop the worldwide market for Hana, which competes against US software giant Oracle’s more established database system.

Lenovo’s data centre group, which provides servers, storage, software and services, has largely been working with SAP to fine-tune hardware to specifically run Hana, as well as cooperating on joint marketing efforts.

Other global hardware suppliers with huge Hana-based deployments include Hewlett Packard Enterprise, Dell Technologies, Cisco Systems and Huawei Technologies.

Under its latest initiative with SAP, Lenovo will build and operate a data centre to support its new managed service, which it calls “Lenovo Enterprise Cloud designed for SAP Hana”.

Cloud computing enables companies to buy, sell, lease or distribute online a range of software and other digital resources as an on-demand service, just like electricity from a power grid. These resources are managed inside data centres. “Cloud” refers to the internet as depicted in computer network diagrams.

Lenovo’s managed service is designed to open a simple path for companies on the mainland to run and deploy their Hana-based business applications off their premises and in a more efficient, highly scalable cloud environment, according to SAP Greater China chief business officer Edward Chen.

SAP, which started business on the mainland 22 years ago, counts about 12,000 corporate customers in the country.

China Telecom subsidiary China Comservice and Alibaba Cloud, a subsidiary of e-commerce powerhouse Alibaba Group, are SAP’s other mainland cloud partners, which are largely focused on small and medium-sized enterprises. New York-listed Alibaba owns the South China Morning Post.

“With China’s cloud computing market growing extremely fast, Lenovo has an opportunity to increase its data centre business and change the market’s perception that it is mainly a PC company,” said Kitty Fok, IDC China managing director. “Lenovo was the No 1 supplier of Hana-based hardware in China last year, so we expect it to be aggressive in pushing its new cloud service in the market.”

That could provide a big lift for Lenovo’s data centre business, which posted a 20 per cent year-on-year drop in sales to US$1.1 billion in 2016.

Lenovo, which operates in more than 160 countries and territories, reported last week that its data centre unit was still refining its business model, and that it was affected by the supply constraints and increased costs of key components.

The computer giant’s business model in China has it relying too much on third-party resellers and distributors, according to Huatai Research analyst Ken Hui. “Lenovo plans to continue developing its direct sales force,” Hui said.