EMC’s(s emc) 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(s 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(s csco) 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(s ntap).
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.