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Lenovo cements deal with NetApp to strengthen datacentre foundation

Lenovo wants to become more customer-centric. A tie-up with NetApp takes its datacentre strategy to the next phase. We investigate

At its Transform 2.0 conference in New York, Lenovo unveiled how it would be expanding its datacentre business through a strategic partnership and joint venture with all-flash storage provider NetApp.

The pair announced a global, multi-faceted partnership, which they said would bring innovative technology and a simplified experience to help customers modernise their IT and accelerate their digital transformation.

The partnership is part of Lenovo’s transformation, and is integral to boosting its datacentre business. In its fourth-quarter 2018 results, Lenovo reported that revenue in its datacentre business had grown by 44% year on year to $1.2bn.

In a transcript of the results announcement, posted on the Seeking Alpha financial blogging site, Yang Yuanqing, chairman and chief executive officer at Lenovo, said: “For the full year, our transformation actions to build in-house design capability helped our hyperscale business improve its customer mix and grow this business outside of China rapidly, but it’s also achieving revenue growth year on year. Our software-defined segment achieved triple-digit revenue growth, while we further narrowed the gap to challenge the number one supercomputer position.”

Speaking at the Transform 2.0 event, Yuanqing said the company was shifting its focus from the traditional enterprise datacentre market to the hyperscale public cloud providers, a market segment that HPE recently pulled out of.

When Lenovo bought the x86 server business from IBM in 2014, the majority of the datacentre market was traditional enterprise customers. “In that environment, we could only leverage the existing product portfolio to succeed,” said Yuanqing. “But in the past year, the market has shifted from enterprise IT to cloud. We have been building a strong foundation in the cloud, hyper-convergence, software-defined technology and hyperscale – and we have strengthened our core competency. We now do business with six out of the top 10 cloud businesses. It is 48% of the datacentre market – if we can’t compete here, how will we grow?”

But the deal with NetApp is focused on the traditional enterprise, and in particular those enterprises running legacy IT that want to move workloads to the cloud but need to keep certain data on-premise.

Partnership plans

Through the partnership, Lenovo and NetApp announced they would co-develop a range of Lenovo-branded storage products that combine NetApp’s all-flash data management with Lenovo’s ThinkSystem infrastructure. These new products will use core software from NetApp and be manufactured by Lenovo.

Read more about Lenovo’s strategy

Additionally, Lenovo and NetApp announced the creation of a joint venture company in China to deliver storage products and data management solutions localised and tailored to meet China’s specialised requirements and distinct cloud ecosystem. The new venture is expected to be operational by spring 2019, pending local approvals.

Yuanqing said the partnership would enable Lenovo to target 90% of the addressable storage market, claiming it would help it “better meet customer needs” and “help NetApp beat the competition”.

Arguably, the deal could be regarded as a good fit for NetApp, since the top two server makers – HPE and Dell – sell their own enterprise storage products.

According to IDC’s latest report on worldwide enterprise storage systems market revenues, Dell was the largest external enterprise storage systems supplier in the second quarter of 2018, accounting for 29.2% of worldwide revenues. NetApp finished in second position, with 13.5% revenue share for the quarter. HPE/New H3C Group was the third largest supplier, with a 10.6% share of revenue. IBM and Hitachi rounded out the top five with 9.4% and 6.6% market share, respectively.

Brad Anderson, senior vice-president and general manager of the cloud infrastructure business unit at NetApp, said the partnership would help NetApp target a different customer segment.

“NetApp is more in the enterprise. We under-service the small and mid-sized business market. Lenovo has a fantastic relationship with those customers,” he said.

Anderson said the partnership would deliver innovative technology and simplified systems to help customers accelerate their transformation, drawing on NetApp’s hybrid cloud data management and Lenovo’s supply chain.

Going hyperscale

Unlike IBM, Lenovo is well placed to meet the demands of a business that sells to the consumer market and to hyperscale cloud providers, according to Yuanqing.

“If you want to keep a consumer device business, you must have the capability to design and manufacture efficiently,” he said. “Lenovo’s competitiveness is much stronger than our key competitors, most of whom use a third party for manufacturing.”

Yuanqing said Lenovo undertakes its own design and manufacturer, which puts the company in a unique position. It has recently begun manufacturing server motherboards in volume at its Chinese manufacturing facility, as it gears up to take on the original design manufacturers (ODMs).

Kirk Skaugan, executive vice-president and president of the datacentre group at Lenovo, said: “When we go to a hyperscale customer, we have to say we are ODM+ because they say they don’t buy from a multinational manufacturer. This means we build our own motherboards.

“We have far greater procurement power than an ODM because we are manufacturing four devices a second. The hyperscale providers are global so we have to ship to South Africa, Brazil, India and Argentina, and these are not easy countries for ODMs to get products through the supply chain. And third, we are the number one in x86 server reliability.”

Read more on Data centre hardware

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