Lenovo, the world’s No. 2 PC maker, is teaming up with EMC (NYSE: EMC) to seek a bigger share in the global server and storage market.
The two firms announced the creation of a joint venture on Tuesday in which Lenovo will own 51 percent. The deal also strenghtens ties between two global technology giants that maintain large operations in the Triangle.
A reseller agreement focuses on network storage, and it replaces a partnership EMC had with Dell Inc.
Lenovo and EMC also are forming a server technology research and development program focused on X86 industry standards. Lenovo, which already sells its own servers, plans to bring new servers to market through the EMC relationship. The software developed also will be incorporated into “selected” EMC products over time, the companies said.
The deal is a boost for Lenovo and comes at the expense of Dell, the world’s No. 3 PC maker who had worked with EMC in the past but has become a rival to EMC in the storage businesses, one analyst noted.
“We think Lenovo will copy Dell’s success in the server business so this is positive in the long term,” said Christine Wang, a Taipei-based analyst at Daiwa Capital Markets. “This is good for both sides. Lenovo will gain sever capability and expand its server business in China. EMC will expand storage business in China as its current channel in China is weak.”
Lenovo also will sell EMC products worldwide with an emphasis on its home market of China.
Specifics financial information about the joint venture were not disclosed.
Lenovo, which operates its global executive headquarters in Morrisville, will contributed cash to the deal.
EMC, which maintains research and development as well as manufacturing operations in the Triangle, is contributed “certain assets and resources” from EMC’s Iomega business. The firms plan to target small- and medium-sized businesses.
“Today’s announcement with industry leader EMC is another solid step in our journey to build on our foundation in PCs and become a leader in the new PC-plus era,” said Yuanqing Yang, Lenovo’s chairman and CEO, in a statement.
“This partnership will help us fully deliver on our PC-plus strategy by giving us strong back-end capabilities and business foundation in servers and storage, in addition to our already strong position in devices,” he added. “EMC is the perfect partner to help us fully realize the PC-plus opportunity in the long term.”
EMC Eyes China
EMC sees the partnership as an opportunity to expand its business, especially in China.
“The relationship with Lenovo represents a powerful opportunity for EMC to significantly expand our presence in China, a vibrant and very important market, and extend it to other parts of the world over time. Lenovo has clearly demonstrated its ability to apply its considerable resources and expertise not only to enter, but to lead major market segments,” said Joe Tucci, chairman and CEO of EMC.. We’re excited to partner with Lenovo as we focus our combined energies serving a broader range of customers with industry-leading storage and server solutions.”
As part of the agreement, Lenovo will resell machines made by EMC, Peter Hortensius, head of Lenovo’s Product Group, said. The sales will initially happen in China before moving abroad, he said.
“We’ve been looking for an opportunity to grow our server business outside of China as well as get into more commercial products than just our PCs,” Hortensius said in a telephone interview today. “EMC has some interests that are very complementary to ours.”
The earlier partnership was terminated last year after Dell became a rival by entering the storage market, said Joel Schwartz, EMC’s senior vice president for global new business development. The company is looking to China as a source of growth this year amid ebbing demand in regions such as Europe, David Goulden, EMC president and chief operating officer, said in an interview last week.
“People say ‘Well, China is slowing,’ but China’s GDP will still grow at a healthy rate this year, albeit perhaps not as healthy as people expected last year,” Goulden said. While EMC doesn’t break out revenue from China, Goulden said the country is probably EMC’s biggest in the Asia-Pacific region.
EMC and Lenovo will also work together on servers to be sold by Lenovo and eventually embedded in EMC storage equipment.
The partnership will not be material to either company’s earnings in the current fiscal year, the two said in a statement.
“EMC is building out its China operations, and is partnering with Lenovo in order to leverage its significant client base,” said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong. “The fit is good. China will be the test-bed for the partnership before taking it overseas.”
(Bloomberg news contributed to this report.)