EMC's interest in China, servers continues to grow

EMC is showing heavy interest in boosting its share of the data center market by moving from storage and related services to servers.

Over the past two years, EMC has announced a number of partnerships and products that slipped its toe into the door of the server market. On Tuesday, the company announced a partnership with Lenovo under which the two will build and sell servers, and, of course, storage, beginning with the Chinese market.

Lenovo and EMC have formed a server technology development program that will accelerate and extend Lenovo's capabilities in the x86 industry-standard server segment, according to EMC. "These servers will be brought to market by Lenovo and embedded into selected EMC storage systems over time," the company said.

Lenovo is on its way to becoming the world's top PC vendor, according to IDC. EMC has long been the world's largest external storage vendor.

EMC's partnership with Lenovo creates a development and reseller relationship: Lenovo will hawk EMC's networked storage products to its customers, first in China then in other global markets.

"For anybody who has not felt or sensed that EMC was expanding their focus and role beyond storage to embracing data and information management from servers out to the desktop..., this should get their attention, and, for some perhaps, instill fear of what these two companies are doing," said Greg Schulz, senior advisor at market research firm StorageIO Group.

Bryan Wang, a principal analyst with Forrester Research, wrote in a blog today that the EMC partnership provides a boost that will help Lenovo develop X86 server products targeting the global market.

Lenovo's existing server business is mostly based in China. With the new ThinkServer brand, it is looking to enter the global market, according to Wang. "In the past 12 months, EMC has accumulated experience from a previous partnership with Dell and recruited server talent from IBM," he wrote.

EMC may leverage the Lenovo relationship to create an EMC-branded appliance.

"The current arrangement only shows that EMC will integrate Lenovo server products to complement its storage product portfolio. But considering that major competitors IBM, Oracle and HP are all announcing appliance products in the market, EMC may use the [joint venture with Lenovo] to follow suit," Wang wrote.

Roger Cox, a vice president of research at Gartner who covers data center convergence, said the new Lenovo relationship doesnt mean EMC is looking to enter the saturated server market, where margins are thin. But he agreed with Wang that EMC will likely use Lenovos server technology in appliances, like the Greenplum big data analytics appliance it currently sells.

They can take the Lenovo platform and stick that in theirs, versus buying one from Super Micro, he said.

EMC and Lenovo also plan to bring in products from EMC's Iomega business into a new joint venture that will provide Network Attached Storage (NAS) systems to small and medium businesses (SMB) and distributed enterprise sites.

"The Iomega division hasn't generated much news since EMC acquired it," Wang wrote. "Positioned in the low-end market, there was little synergy to leverage EMC's high-end storage lines. The [EMC-Lenovo joint venture] will not only help Lenovo at the entry level of the market and with 'know-how' in the storage market, but will also help EMC spin off the Iomega division to focus more on key competitors."

EMC's shift

Over the past two years, EMC has shifted its focus onto the server market, first through its "Project Lightning", which involved selling PCIe flash cards to accelerate server performance, then by partnering with Cisco to create the Virtual Computing Environment (VCE) alliance, which sells Vblock.

Vblock integrates Cisco's Unified Computing System (UCS) servers and networking switches with EMC storage arrays, as well as virtualization software from its subsidiary VMware, for public and private cloud services.

At its annual users forum last year, then-EMC President and Chief Operating Officer Pat Gelsinger said the company had demonstrated server capability on storage arrays by running VMware-based virtual machines (VMs) on storage arrays.

The technology is enabled through EMC's pervasive use of multicore Intel x86 processors. EMC runs vSphere directly on the storage controllers and then uses vMotion to migrate VMs from application servers onto the storage array.

Where from here?

Paul Mansky, managing director of equity research for financial services firm Cantor Fitzgerald, wrote in a report today that China represents 5% to 6% of the storage market, but it is growing fast.

"EMC is relatively under-penetrated in the region, particularly vs. IBM and HP, in our view. Lenovo meanwhile has ~15% share of the China server market, which represents a sizable base within which to sell storage...," Mansky wrote. He sees EMC's move to embed servers in a new architectural category as something that could gain traction, but not before 2014.

Mansky believes EMC likely "shopped" for server partners, including its existing VCE partner Cisco. However, given architecture, workload and margin considerations -- along with Lenovo's deeper penetration into the Chinese market -- a Cisco deal "did not make sense."

On the heels of VMware's purchase last week of software-defined networking vendor Nicira for $1.26 billion, EMC's partnership with an alternate server vendor "represents another potential crack in the Cisco/EMC relationship. We view this as beginning to sound like Dell/EMC circa 2009-2010," Mansky wrote.

In 2010, Dell cut short a 10-year, multi-billion-dollar reseller partnership with EMC after competition between the two companies in storage sales reached a boiling point. During a later interview, EMC's Gelsinger said the company had hoped to continue the partnership.

Schultz believes the new EMC/Lenovo partnership is a natural fit, as EMC has the tools for backing up, managing and protecting physical and virtual desktops along with the shared networked storage solutions from entry-level to SMBs and enterprise products. That, he said, complements Lenovo's tablet, laptop, desktop and server strategy.

"What is ironic is that IBM spun off Lenovo in their focus on big enterprise, a place where EMC has done very well with big storage and big data," Schultz said. "However, they have also done well with their acquisitions of Iomega, VMware, Mozy, RSA and others that play to and leverage Lenovo's desktop and edge focus."

Now, said Schultz, the question becomes: Who will Chinese networking and telecommunications company Huawei partner with after its storage partnership breakup with Symantec?

Forrester's Wang wrote that partnerships between multinational vendors and Chinese firms are "works in progress."

"There have been a number of similar partnerships between Chinese and [multinational] vendors before, such as the Huawei/Symantec [one] that ended in November ... after three years. Cultural differences have always been a big challenge for effective communication and execution between partners in cases such as this one," he wrote.

Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed. His e-mail address is lmearian@computerworld.com.

See more by Lucas Mearian on Computerworld.com.

Copyright © 2012 IDG Communications, Inc.

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