Lenovo COO Gets Candid: Integrating IBM's x86 Workforce Is Our Biggest Challenge

Folding IBM's System x practice into Lenovo's fast-paced, cost-conscious environment has proven difficult, Lenovo's chief operating officer said Wednesday.

"To be honest with you, we have some challenges of our own," said Gerry Smith, COO and executive vice president of Lenovo's PC and Enterprise Business Group. "We have a culture we bought with the x86 business that we're spending a tremendous amount of time re-engineering and reteaching and relearning."

Smith told 300 attendees of the 2015 Global Technology Distribution Council (GTDC) Summit in San Francisco that he wished to be candid about the supply chain challenges and integration issues Lenovo has experienced around its purchase of IBM's $2.1 billion x86 server business, which closed in October.

[RELATED: Despite Lenovo Americas Growth, Partners See Weakness In PC, Server Demand]

Specifically, Smith said Lenovo has been focused on making the IBM server acquisitions mainstream brands where channel partners of all shapes and sizes feel like they can come in, win deals and make money.

"It's about speed to market, and it's about the volume of our go-to-market," Smith said. "It's not just about having cool-looking, high-performance servers."

When Lenovo acquired IBM's personal computer business in 2005, Smith said it took 18 to 24 months to align the IBM culture and strategy with Lenovo's existing ethos and get everyone on the same page. For this reason, Smith cited integrating IBM's x86 workforce -- as well as employees from Motorola's $5 billion smartphone practice -- as the single biggest challenge the Beijing-based vendor is facing today.

"We're almost a year in, and I think we're making progress on that [integrating the acquisitions]," Smith said, adding that Lenovo is committed to aligning the cultures more quickly this time around.

Smith noted that he has devoted 80 percent of his time to Lenovo's enterprise business since the x86 acquisition closed, spending just 20 percent of the time on the personal computer side of the business even though Lenovo is the global leader in PC sales.

Smith acknowledged that the x86 server business has declined for three straight years, although he sees revenue starting to flatten out and expects sales to improve in the long run.

"It's a great market," Smith said. "In the future, we think everything is going to be centered around enterprise."

Although the ThinkServer platform purchased from IBM enjoyed double-digit year-over-year growth in Lenovo's most recent quarter, sales for the high-end System x line, which was also acquired from IBM, continue to decline, sending Lenovo scrambling to lower prices, according to an August report from TBR analyst Krista Macomber.

Lou Giovanetti, co-founder of Waltham, Mass.-based Lenovo partner CPU Sales and Service, told CRN last month that the market isn't "ready to accept Lenovo servers," adding that prospective customers "don't seem to be biting" on switching to Lenovo servers from Dell or Hewlett-Packard since both Dell and HP are competing aggressively on price.

Lenovo's Smith praised Chris Frey, vice president of North American commercial channels and SMB, and Sammy Kinlaw, North American channel chief, for doing a good job of turning around the company's performance in North America, where year-over-year sales grew by 46 percent in the most recent quarter to $3.3 billion.

Global profits, however, plummeted by 51 percent to $105 million, prompting Lenovo to reveal plans in August to lay off 3,200 nonmanufacturing employees, or about 5 percent of its overall workforce. Smith said Wednesday that the vendor is taking aggressive actions to get the right culture and cost structure in place so that Lenovo can continue to outgrow the rest of the market.

Given all the inflection points in enterprise, Smith said the vendors that can avoid getting entrenched in a traditional data center mind-set will be the most successful.

"PCs will still be there, and they're a great business," Smith said, "but enterprise and cloud are the future."

PUBLISHED SEPT. 10, 2015