Lenovo: Red Dragon Rising

The Red Dragon of IT has awoken.

With two back-to-back blockbuster deals, Lenovo, the Chinese PC juggernaut, hopes to forever change the IT landscape's balance of power. Over the last two weeks Lenovo revealed its post-PC blueprint for IT domination that includes doubling down on mobile, client and the data center.

Lenovo's $2.91 billion purchase of Google's Motorola Mobility smartphone business, following its $2.3 billion acquisition of IBM's x86 server business the week before, opens the door to lucrative new opportunities to grow business, channel partners said.

"Buying IBM's server business and Motorola Mobility hints at how Lenovo is going to innovate and compete with Hewlett-Packard and Samsung. They are building an impressive ecosystem between their sales operations and their ability to meet the global needs of SMBs and the enterprise. It's a strategy that can only mean good things for channel partners, the enterprise and their customers," said Sean Hobday, executive vice president of sales at Zones, an Auburn, Wash.-based solution provider.

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Partners said Lenovo, which is widely seen as extremely channel friendly with over 80 percent of its $5.5 billion in North American commercial sales led by partners, is lining up its IT ducks and is poised to be a channel giant empowering partners to go head-to-head with HP, Dell, Samsung and Apple.

A fortified Lenovo means trouble for its competitors, said Frank Gillett, an analyst at Forrester Research. "This is a critical step for Lenovo to make good on a promise to build an ecosystem and cloud platform with a complimentary product portfolio. Lenovo is the first IT company to rise to offer a full range of IT solutions from the smartphone, tablet, laptop and data center. Dell is not there, HP is not there, and neither is Samsung," Gillett said.

If both deals are approved, overnight the world's No. 1 PC maker becomes the third largest smartphone maker, behind Samsung and Apple, according to Counterpoint Technology Market Research, and the third largest x86 server maker, behind HP and Dell, according IDC.

Lou Giovanetti, co-founder of Woburn, Mass.-based CPU Sales and Service, a longtime Lenovo partner that serves SMB and enterprise customers, said Lenovo's purchase of IBM's x86 server business will be a game changer for his business.

"The Lenovo channel has been aggressive, price-conscious and a friend of SMB. Not only will IBM's cachet help us win in SMB, it will allow me to crack my enterprise business open and make more money," Giovanetti said.

NEXT: Challenges Aplenty

Challenges Aplenty

But those same Lenovo partners concede that the Chinese computer maker faces unique challenges. For starters its North American channel of 25,000 is comprised mostly of PC-oriented partners that are going to need to up their channel IQ to include mobility and servers.

Majdi "Mike" Daher, co-founder and CEO of Denali Advanced Integration of Redmond, Wash., whose company is closely aligned with mobile powerhouse Samsung, said Lenovo has a lot of heavy lifting to do on the front end and the back end with its recent acquisitions. "The Lenovo partner community is built on PCs and laptops. If Lenovo is going to succeed, they are going to have to move outside of their comfort zone and reach out to the partner community that knows how to sell into the data center and can integrate mobility into a complete solution."

Lenovo is going to have to "seriously up its game" to succeed in the smartphone market, said Daher. "I've seen plenty of companies spend a lot of money only to fail," he said. "HP and Dell tried to crack into the mobile market and fell flat on their faces. Lenovo has a leg up on HP and Dell because it not only buys Motorola from Google but also [maintains] that Google relationship. Lenovo just put a huge target on its back. Samsung, Apple, Dell and HP are going to do whatever they can to compete with Lenovo now."

Lenovo's Chris Frey, vice president of commercial channel sales at Lenovo, North America, is bullish that the Lenovo channel will quickly adapt to new challenges and new opportunities.

"I don't know what the exact channel partner profile is. We have a lot of channel partners -- both big and small. But nobody should sell Lenovo's channel short. Nobody should ever underestimate Lenovo's channel to deliver valuable solutions to the customer that complement today's business needs for tomorrow. We have innovated and grown IBM's ThinkPad business to help us become the leading PC maker globally," Frey said.

Aside from channel challenges, Lenovo faces an uphill battle putting Google's money-losing Motorola Mobility division into the black. According to Lenovo, Google's Motorola Mobility division lost $928 million in 2013, compared to a loss of $616 million in 2012.

Additionally, both deals are expected to draw scrutiny from U.S. regulators concerned about security issues that loom over technology acquisitions by Chinese companies. That said Lenovo expects the deals to close within the next six to nine months.

NEXT: Lenovo Data Center Grab

Lenovo Data Center Grab

Despite the long and bumpy path Lenovo faces to piece its empire together, partners said they are eager to grow their Lenovo business beyond laptops and PCs. As Lenovo reinvents itself as an end-to-end service provider, partners said their PC business will act as a springboard to selling other higher-margin products and services.

"This acquisition is bigger news than people think. It's not about Lenovo spending over a billion dollars to bang it out with Dell and HP for server sales. It's a game changer for me and my Lenovo customers. Now we can start talking about the data center, services and more complex solutions that add up to more lucrative deals," said Jamie Shepard, regional vice president for Dallas-based solution provider Lumenate.

The IBM x86 deal not only gives Lenovo IBM's x86 server business but also gives Lenovo channel partners the ability to resell IBM's Storwize disk storage systems, General Parallel File System software, SmartCloud Entry offering and elements of IBM's system software portfolio, including Systems Director and Platform Computing solutions.

Along with IBM's x86 line of servers, Lenovo acquires a deep bench of channel know-how from Big Blue. The deal includes the transfer of 7,500 employees including Adalio Sanchez, general manager of IBM's System x business, IBM's System x senior management team, the entire System x development team, and IBM's System x sales and marketing operations, including channel managers and reps.

"This is a great opportunity for the channel to expand their capabilities and add value. Partners will be able to leverage and extend capabilities with IBM's x86 server business and also leverage IBM's portfolio of server, mainframe and storage products," said Stephen Leonard, general manager, sales, for IBM's Systems and Technology Group, who stays with IBM if the deal is approved. "We believe the combination of these three things will strengthen the channel and the power it has in the marketplace, giving Lenovo partners the ability to compete much more broadly and deeper."

Meanwhile some partners said they are tempering their enthusiasm until they have a clearer picture on how Lenovo will be able to absorb IBM's x86 channel partners without major hiccups and that many questions still need to be answered.

"Lenovo just doesn't have the channel tools and back-end systems in place to make this a seamless transition," the partner said. "What is the transition path? How do we sell IBM Flex with Lenovo chassis? Will this impact my business? Until I hear more granular details about what the transition path is, the jury is still out," said an IBM Premier partner, who asked not to be identified.

When asked about overlap between IBM and Lenovo channel partners, and the number of x86 IBM partners that might join Lenovo's channel after the sale, IBM and Lenovo declined to answer.

NEXT: Transforming For Success

Transforming For Success

Since its founding in the 1980s, Lenovo has quickly evolved from a parochial Chinese electronics company based in Beijing to the world's No. 1 PC maker with $33.9 billion in revenue. Perhaps its most pivotal moment in its rise came in 2005 when it purchased IBM's ThinkPad business for $1.25 billion. That helped give it global credibility and establish a critical beachhead in the U.S. market.

Since 2005, Lenovo has made a number of key acquisitions including buying cloud-computing provider Stoneware in 2012. Also in 2012, Lenovo entered a joint server-storage pact with EMC to broaden EMC's footprint in the x86-based server market and give Lenovo the ability to resell EMC networked storage solutions to its own customers.

Over the last few years Lenovo said it was committed to pushing what it called a "PC Plus Era" -- where partners will start to see an emphasis put on Lenovo servers, services and mobile devices just as much as the PC.

With the proposed acquisition of IBM's x86 business, Lenovo said, it accelerates their data center plans by an estimated five years of cracking into the x86 server market. Forrester's Giovanetti said the purchase of Motorola Mobility helps save Lenovo up to three years in its plan to break into the U.S. smartphone market.

"Motorola gives Lenovo valuable wireless carrier relationships, a mobile development team, stronger patent protection through licensing agreements with Google, and, most importantly, a recognizable name," Giovanetti said.

Lenovo said that it will retain all of Motorola's 3,500 employees and acquire 2,000 mobile patents. Yang Yuanqing, Lenovo's chairman and CEO, has said publicly he expects Lenovo to sell 100 million handsets in the year after it completes the Motorola deal.

To help Lenovo leverage its ambitions, the company made an important organizational change just days before it anted up $2.91 billion for Motorola Mobility. Lenovo said it will be reorganizing into four distinct business groups based on specific technologies: Think-branded PCs, mobile, cloud services and its burgeoning enterprise server business.

Ira Grossman, CTO of end-user and mobile computing at Cleveland-based national solution provider MCPc, said Lenovo faces challenges integrating Motorola Mobility and the x86 IBM server acquisition into its product portfolio, but he is confident Lenovo can pull it off.

"Lenovo already has a track record of successfully integrating a major IBM acquisition with the ThinkPad line," Grossman said. "I am absolutely confident that they can pull off the integration. I think this is going to be seamless for the channel."

NEXT: Gaining A Mobile Edge

Gaining A Mobile Edge

Lenovo's biggest challenge in building a smartphone-to-server play for channel partners is giving solution providers the ability to sell smartphones, Grossman said. "The challenge is there is still some old laws on the books that prevent manufacturers from selling unlocked smartphones through the channel rather than through carriers. We need help from Lenovo solving that carrier relationship problem before we can sell a smartphone-to-server-solution set," he said.

John Convery, the Issaquah, Wash.-based founder of John Convery Consulting, said for solution providers with mobile as part of their portfolio, Lenovo could soon open doors to lucrative new opportunities such as mobile device management, security and data capture to the data center.

"This should be a wake-up call for Dell and HP. There's little doubt that those companies are going to be doing some soul searching with Lenovo hot on their heels. [HP CEO] Meg Whitman has been talking about its mobile road map. If Meg does a competitive analysis against Lenovo, she has to be concerned Lenovo has that mobile box checked and HP doesn't," Convery said.

"If you are a progressive partner and you are not investing in mobility, you might not be around in a few years," Convery said.

And VARs are investing.

In October, Redmond, Wash.-based Denali Advanced Integration opened a mobility device integration center in Texas where it configures and supports handsets. Denali, which has 30,000 devices under management, said large enterprise customers are scrambling to provide mobile devices and services for an increasingly mobile workforce.

MCPc, whose Anyplace Workspace is centered on providing anyplace, anytime, anywhere computing to corporations, also sees mobile as part and parcel of an end-to-end corporate IT solution.

"Enterprise mobility can no longer be provided by a boutique solution provider or a niche carrier-focused service provider," Grossman said. "The opportunity for MCPc is to sell an end-to-end Lenovo reference architecture. We have the services and the strategy to push all those levers for the enterprise. What partners need Lenovo's help around is providing the wireless carrier component."

A year from now, assuming Lenovo wins regulatory approval, China's Red Dragon of IT could be well on its way toward remaking the IT landscape.

This article originally appeared as an exclusive in the CRN Tech News App available for iOS and Windows 8.