In the middle of a bitterly cold winter, Chinese tech giant Lenovo has become very hot news. In a single week, the company best known for its solid line of laptops spent $5.3 billion acquiring two new product lines. The first move was made on January 23, when Lenovo purchased IBM’s x86-based server business for $2.3 billion. Six days later, Lenovo extended its reach in the other direction, picking up Google’s Motorola Mobility unit for $2.91 billion.
The deals drew attention from all corners of the tech world. Many wondered about IBM’s long-term strategy, especially with hardware dragging down the most recent quarterly results. Others debated on whether Google’s acquisition of Motorola in May 2012 was a rash decision that needed to be corrected or a patent grab that always had a handset sale as part of the plan.
Most of the discussion, though, revolved around Lenovo and its position in today’s IT landscape. Adding low-end servers to the portfolio was widely viewed as a natural step that gave Lenovo a stronger enterprise hardware stack. The Motorola purchase received less praise, with many noting that Lenovo will still remain a distant third to Apple and Samsung among smartphone vendors. (Of course, the economic rule of three indicates that third place is still a viable market position).
Lenovo’s ultimate success remains to be seen. There are definite challenges to overcome, but the company is well poised to have a broad impact thanks to its industry-leading portfolio diversity. At a high level, there are three main takeaways that can be applied to almost any firm in the technology industry:
Commoditization Continues. IBM’s divestiture of its x86 business looked a lot like its divestiture of the PC business in 2003, in part because both sales had the same buyer. Obviously IBM saw both businesses drawing lower margins as companies demanded less customization. All tech firms should examine their business for those pieces that may have helped build a strong foundation but now detract from more advanced pursuits. It may not always be easy to find a buyer, but …
Commodities are Still Profitable. Clearly Lenovo is not assuming that x86 servers — or smartphones in the near future — will return to high margins. Their business model, though, does not require high margins from those products. They expect to use their strengths in supply chain management and market penetration to incorporate these products and grow as an overall hardware provider. As much as cloud and mobility may be driving the majority of IT discussions, there are still many IT elements that have existed for decades that remain critical. A viable business can exist around these elements, provided that there are proper expectations for profits and growth going forward.
Unified Solutions Hold Value. It is becoming difficult to draw lines between enterprise IT and consumer technology. The IT space is growing to include both, and there will be much more diversity in the future than there was in the relatively homogenous PC era. In this environment, different companies are pushing some form of ecosystem as a way to provide a consistent experience. That could come in the form of hardware, software or some combination of both that also includes services. Lenovo is clearly focusing on a hardware-centric approach, and solution providers should look for ways to bring stability and simplicity into IT settings that are growing more chaotic.
Seth Robinson is CompTIA’s director of technology analysis.
