IBM leaves the low-end dedicated server market with Lenovo purchasing it’s low-end server line just recently according to ZDnet.com. The profit margins in such a business is low at best but Lenovo is a master at low profit margins as it has shown success with the PC market in recent years after buying IBM’s PC market as well a few years back in 2005
As virtualization and cloud hosting is becoming the new PaaS in the near future if not already, this has attracted many companies including IBM meaning fewer “boxes” needed and using less space. So it is of no surprise that a company such as IBM has less of a need for the low-end dedicated server market taking up space and providing little financial profit.
Lenovo thinks it can lower the current costs of IBM’s low dedicated server operating costs which will certainly help with low profit margins. As China’s server market is already crowded, expanding outside of the country is an obvious choice for Lenovo and as they have a good footing in China, it will most certainly be a good launch pad to start from with their new low end dedicated server business.
The other big advantage Lenovo will have is that because of it’s shear size, it will be able to tackle the issue of what is strongly needed in the low end server market to make a decent profit, which is large volume to drive sales and earnings.
However, current trends have indicated that the PC market is continuing to decline most notably due to smartphone sales and the ever increasing popularity of tablets from Apple and Samsung as well as several other major manufacturers.
It could certainly be seen as a good thing for the consumer or server buyer that Lenovo is soon to be competing with the big players such as Dell and Hewlett-Packard. Hosting And Designs L.L.C. predicts that Supermicro will be keeping an eye on this new major move from Lenovo as it currently and arguably is the lowest priced dedicated server manufacturer at this time and has many customers in the general web hosting business as well as PaaS; cloud and virtualization services.
Lenovo has done this purchase before with IBM’s PC business and seemed to work out smoothly as it also took over contracts and services provided via IBM, not just hardware. IDG News Services reported Lenovo spending $2.3 billion on the IBM x86 server business and has attracted the interest of the Committee on Foreign Investment in the U.S. (as large foreign purchases usually do). Due to recent events it may cause security concerns for the U.S. government. Even though Lenovo purchased IBM’s PC line in 2005, the Snowden leaks could make things more complicated and uncertain. Once (and if) they give the stamp of approval it looks like Lenovo is ready for round two.