Analysis: Lenovo will sharpen execution on strategic data center opportunities in coming months, based on what the company said and its moves in recent months as amplied in its most recent earnings report last month, says analyst Krista Macomber of Technology Business Research.

HAMPTON, N.H. – With restructuring complete, Lenovo will sharpen execution on strategic data center opportunities

Lenovo’s Enterprise Group achieved a number of key wins in C3Q15. The company reported 550% year-to-year Enterprise Group revenue growth, with $900 million in System x revenues and 42% year-to-year ThinkServer revenue growth.

TBR estimates Lenovo sparked double-digit year-to-year System x growth after 13 consecutive quarters of decline — a critical turnaround as Lenovo seeks to strengthen engagements with midsize and large enterprise customers. ThinkServer growth was buoyed by key hyperscale wins in China, including one with cloud service provider Alibaba.

As customers in the vast and growing Chinese market increasingly rely on public cloud services, and as Lenovo faces strengthening competition in the country from Cisco, Dell and Huawei, the wins are strategic to Lenovo in cementing its position as a critical infrastructure provider in its domestic market.

Lenovo is aggressive and focused, but 3Q15 marked its first quarterly net loss in six years — the result of challenges such as the stalled PC market and data center customers’ transformation to new IT architectures. With its restructuring complete, Lenovo will emphasize its “attack” approach to focus its efforts on key growth opportunities in the data center market.

TBR believes Lenovo is positioned to ensure continuity of the System x business and aligning its Enterprise Group portfolio and go-to-market strategies with critical pockets of growth including hyperconverged platforms. Navigating a complex and coopetive data center landscape to maximize strategic alliances and refining its go-to-market approach to embrace business outcomes and more comprehensive data center architectures are critical to Lenovo sustaining above-average data center growth on the global stage.

  • Lenovo aligns closely with Nutanix to accelerate hyperconverged growth

Partners are critical to Lenovo’s ability to enable customers’ transformations to software-defined data center architectures. During 2015 Lenovo has allied with several hyperconverged platforms vendors to establish traction in the market, which TBR expects will disrupt the traditional stand-alone infrastructure market over the next five years. Lenovo’s most recent alliance in the space, however, has particularly strategic implications.

Lenovo’s partnership with Nutanix, announced in early November, is notable in that it combines Nutanix’s strong footprint and clout in the hyperconverged market with the install base and credibility of Lenovo’s System x server line.

Even more strategic, TBR believes, is the companies’ complementary aggressive focus on achieving rapid growth. The System x business faces competitive pressures including commoditization and strengthening offerings from peers, and Nutanix seeks to continue gaining market share in the face of intense competition in a rapidly expanding market.

Lenovo and Nutanix have worked closely around system optimization and joint go-to-market initiatives; TBR expects the alliance will deepen quickly as the vendors seek continued differentiation and increased traction in the nascent but fast-growing and disruptive hyperconverged market.

(C) TBR