Lenovo's data centre business staunches the bleeding

When Lenovo acquired IBM’s x86 server business in late 2014, Big Blue reported total server revenue of US$2.33 billion across all of its server architectures.

Once the acquisition settled, IBM’s server revenues settled in around the $800 million mark, suggesting that its x86 business ran at about $1.5 biilion a quarter.

Lenovo then struggled to keep up that run rate; in part because it initially assumed its enterprise PC sales force could easily start selling servers.

That assumption proved wrong: PC sales people just didn’t have the contacts or skills to sell core infrastructure. The company’s small storage and networking businesses didn’t accelerate or achieve the hoped-for synergies with servers.

Then, in 2017 the company’s total data centre revenue landed well behind what IBM had managed with its x86 server business alone.

Things got so bad that the company’s leadership gave themselves an ambition of “stabilisation” rather than outright success.

During that time the company got a leg-up from China, which has a policy of preferring domestic suppliers. Lenovo therefore scored the gig of running SAP’s cloud in the Middle Kingdom and an inside track on some other work too.

That helping hand  was reflected last week in news that the company has sold server designs to six of the top ten hyperscale operators; and Lenovo now feels the credibility of having done so will help it address the 11th through 50th hyperscalers.

The company says its work in China is already translating into more attention from hyperscalers in other nations.

Last week, hyperscale helped the company to declare that the business was “on track to become a sustainable growth and a profit engine for our company.”

The numbers are still unpleasant compared to those Lenovo inherited: revenue hit US$1.6 billion after a third consecutive quarter of double-digit revenue growth (and up 67.8 percent compared to the same quarter a year earlier).

Data Center Group president Kirk Skaugen called out hyperconverged and software-defined products as accelerating markedly, which will help because he described the revenue from hyperscale sales as “lumpy”.

Lenovo is now confident that it will not just continue to do well in hyperconverged kit, but attach more networking and storage in future sales. ITnews hears impressive reports of Lenovo’s switching and storage which is making quite an impression in NSW government projects.

What’s emerging is a data centre business dominated by a combination of sales to cloud and cloud-like on-premises systems. That’s a position data centre rivals HPE and Dell EMC also covet.

And it’s a position that is ahead of China’s other data centre aspirant, Huawei.

So while the numbers have only just returned to that won by IBM’s old x86 revenue, Lenovo looks to have just about pulled off the trick of renovating its data centre business.

It's not out of the woods by any means: it is still making slim losses and its mobile business continues to bleed.

But its PC business is doing well and growing, which will give the many corporate buyers who all-but-insist on ThinkPads plenty of comfort.