IBM Goes On Major x86 Server Offensive

IBM is making a major investment to help juice its x86 server business ahead of the company's $2.3 billion sale of the x86 server division to Lenovo. Money is being targeted at advertising, bonuses for meeting sales goals, and new recruitment bounties paid to partners for luring competing OEM partners to sell System x and Pure System servers.

Adalio Sanchez, general manager of IBM's System x business, said $50 million is being earmarked over the next two quarters for advertising, demand generation and partner co-marketing to help drive x86 sales. He said an additional $1 million will be spent on road shows where company executives will hold meet-and-greet events with partners and customers.

"These funds are designed to make partners nimble, effective in the field and, most important, give partners agility to fight and win deals away from the competition," Sanchez told CRN.

Related: Leaked Lenovo Memo Aims To Quell F.U.D. Over IBM Server Acquisition

IBM has a vested interest in the long-term success of its x86 server business, said Sanchez. As part of the sale to Lenovo, IBM will maintain lucrative service and maintenance contracts for x86 servers post-acquisition. In addition, he said, IBM will be a key provider of storage and networking hardware for Lenovo partners.

IBM's x86 drive is part of the Armonk, N.Y.-based company's "Winning in Transition" initiative, which includes a website of the same name that is designed to help partners and customers learn more about the x86 sale amid the intense scrutiny over how the transition will proceed. Sanchez said IBM's total investment is $250 million over the next 12 months, including the $50 million in advertising, demand generation and co-marketing and the $1 million in road shows. Sanchez, however, declined to break down how the rest of the money would be allocated.

"IBM is going on the offensive. This is our push to win business and go after the competition. Our objective is to make business partners more competitive and more successful selling and winning with System x and Pure System and the entire x86 family," Sanchez said.

"It's good to hear IBM is putting its money where its mouth is," said Joe Mertens, president and CEO of San Antonio-based Sirus Computer Solutions, an IBM partner and among the top 50 on CRN's Solution Provider 500 ranking of the top solution providers in North America by revenue. "This is a significant investment and will go a long way to helping make an effective transition of its x86 business to Lenovo."

One large IBM partner, who asked not to be identified, said IBM had few choices if it wanted to keep the confidence level high for its x86 business.

"This is a necessary investment for IBM to keep its head above water. There is a lot of doubt in the market right now around IBM's x86 business. These programs keep my IBM business at historic levels. Without them, it would be extremely difficult," said the partner.

According to research firm IDC, in February 2014 IBM's x86 server revenue market share plummeted nearly 29 percent compared with the year prior, losing its No. 1 spot to HP by a hair. In 2012, IBM's server division was the top worldwide revenue earner, owning 37 percent of the revenue pie with HP at a distant second with 25 percent.

IBM also has set up a Revenue Growth Fund for partners to tap into to help them win deals against the competition. Sanchez declined to say how much money would be in the fund, but stressed it was separate from so-called special bids.

"This helps us solidify our IBM business and potentially grow our IBM business," said Tom Hughes, director of alliances for the Technology Solutions Group of Ciber, a Colorado Springs, Colo.-based IBM partner. ’In particular, having money in the field, where all the action is, to help our sales reps win business is key."

Additional money would be set aside as part of balloon payments to partners that met or exceeded revenue sales goals as part of a new loyalty program. Payments, IBM said, would be paid out at the end of its second quarter and based on first- and second-quarter revenue on any x86-related business.

Lastly, IBM has introduced a "competitive reseller recruitment program" that includes new guaranteed minimum margins on sales of PureFlex systems. The recruitment piece of the incentive includes an undisclosed monetary bounty paid to partners that bring in competing partners into the IBM partner program.

Some IBM partners, however, are more skeptical of any impact being felt from the changes.

David Fitzerman, vice president of DFC International Computing, a small Toronto-based SaaS provider and IBM partner, said margins are so thin on x86 hardware that even if IBM x86 sales doubled, the bottom-line impact would be minimal.

"IBM is worried about losing sales to HP and Dell?" Fitzerman said. "We have seen IBM business drop. But those sales are lost to the cloud. That's the real threat to IBM or Lenovo's server business. I’m a bit confused at the messaging here by IBM. As it simultaneously tries to boost its x86 business, it's spending even more to get its SoftLayer cloud business off the ground."

PUBLISHED APRIL 15, 2014