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Summary:

The new deal between EMC and Lenovo to sell server-storage bundles could shake up hardware rivals including Dell, Hewlett-Packard and — perhaps most intriguingly — Cisco Systems. EMC, Cisco and VMware are partners on the VCE Vblock effort.

EMC chairman and CEO Joe Tucci

EMC’s newly minted deal with Lenovo reverberated throughout the hardware sector after it was announced Wednesday morning. Under a key part of this three-pronged arrangement, Lenovo and will make and sell X86 servers that will be “embedded into selected EMC storage systems over time.”

That could have big impact on non-aligned hardware players. BusinessWeek looked at the deal through the Dell lens — EMC and Dell had a long-time if uneasy partnership that started to unravel with Dell’s acquisition of storage player Equallogic five years ago. Per EMC’s positioning, the Lenovo-EMC servers will compete most directly with Dell at the low end, but HP stock also took a hit after the news.

Cisco is another party to watch in the fallout from all this. EMC and Cisco, the networking giant that entered the server market with the Unified Computing System in 2009, are parents (along with VMware) of the VCE Co. The VCE company offers Vblock bundles of EMC storage, Cisco UCS, and VMware virtualization. But there are signs that this alliance is stretched thin, especially since VMware, 80-percent-owned by EMC, decided to buy software-defined networking specialist  Nicira. Cisco also has a storage partnership with EMC competitor NetApp.

In a research note issued after the EMC/Lenovo news dropped,  Wells Fargo Senior Analyst Maynard Um wrote:

EMC’s answer to portions of the stack it did not own was to partner – namely Cisco for its networking and servers via its VCE [joint venture]. With the speculation the ties are loosening following VMW’s Nicira acquisition (software-defined networking), the Lenovo deal may be a backup plan on the server-side, given the major server vendors are also competitors. For Lenovo, the transition is logical given some scale benefits on components from its PC business, its enterprise relationships, and the need for expansion.

EMC execs pooh-poohed any notion that the Cisco relationship is imperiled by its new BFF. Under the agreement Lenovo will also sell EMC networked storage to its customers, first in China and then elsewhere, and the companies formed a joint venture to provide network-attached storage  systems to small and medium businesses and “distributed enterprise sites.”

Company CEO and chairman Joe Tucci told The Wall Street Journal he didn’t foresee the new partnership interfering with the Cisco alliance. “Cisco’s making these big heavy data centers, so the area where Cisco is in and Lenovo is are miles apart.”

Jeremy Burton, CMO and EVP of EMC, reiterated that stance via mail.

The Cisco UCS business is at the high-end (as is Vblock).  This is the complete opposite end of the market (think high volume commodity x86 servers).  At that end of the market we often fight “server-storage affinity” i.e. The server vendor is able to sell the storage because they can bundle and offer a deal.  Lenovo plans to enter the server business from the bottom up …  they also have a big brand in China… a place where we’ll prove out the partnership and hopefully provide some upside to our business there.  In addition, Lenovo servers will start to be embedded in our appliances, replacing DELL.

Still, EMC is nothing if not a survivor, and its willingness to shed partners that are no longer useful is just part of that package. Analysts privately say they are amazed that this old-line storage hardware company has managed to stay relevant and powerful by virtue of canny acquisitions and sheer competitiveness.  If Cisco and EMC interests are no longer aligned, look out.

  1. This is a great video about Lenovo’s Thinkserver rd240 hardware. http://lnv.gy/OIfpBl

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  2. Greg Knieriemen Thursday, August 2, 2012

    I can understand the skepticism but not being a partner or customer of either, I really do believe Lenovo Servers and UCS are completely different types of solutions and different use cases.

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  3. Barb — The logic jumps here are curious to say the least. I’m left wondering… Is there an internal thread within GigaOm that mandates VCE be viewed as a Monty Python BOYD skit?

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    1. No VCE mandate here. Although i do love Monty Python.

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  4. I can’t believe anyone’s buying this statement. Of course, EMC is going to SAY this, but their actions are completely the opposite. Look at what EMC/Vmware has done in the past year to Cisco:

    VMware releases vSphere 5.0 with huge vtaxes. This completely screws Cisco as Cisco’s big differentiator in market was huge server memory capabilities.

    VMware buys Nicira for network virtualization. This directly competes with Cisco. Directly.

    EMC partnering with a low cost server manufacturer that competes directly with Cisco. Sure, EMC can claim they’re in different markets but do you really think that EMC isn’t going to influence Lenovo’s products? How long before Lenovo servers look more like Cisco servers?

    EMC appears to have unofficially declared war on Cisco. They’re just trying to do it indirectly.

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