A New Lenovo Sees Data Center Market As Its 'Growth Engine'

North America President Emilio Ghilardi says he's built a new Lenovo ready to become a data center power.

With a new executive leadership team, a more nimble and forward-looking go-to-market strategy, a rich partner program and now its first comprehensive data center product portfolio, Ghilardi said the time is right for Lenovo to take advantage of the weaknesses among the herd of legacy data center hardware vendors.

Ghilardi will be side by side with Yang Yuanquing, the chairman and CEO of the $43 billion China-based computing power, on Tuesday at Manhattan's chic Metropolitan Pavillion to unveil the company's first full-fledged data center product portfolio. The comprehensive product portfolio includes high-performance servers for mission critical big data applications, all flash data center storage and SAN offerings and a complete of cloud-ready line of networking switches.

[Related: Lenovo N. America President Ghilardi: Dell EMC, HPE And Cisco Are Stuck In 'The World Of The Past']

The product blitz represents the first major revamp of Lenovo's product lines since its $2.1 billion acquisition of IBM's x86 server business in late 2014.

Ghilardi calls the data center, and particularly hyper-converged infrastructure, Lenovo's "growth engine." However, Lenovo differs from its competition in its commitment to partnering with independent software firms rather than acquiring those firms or developing its own software, Ghilardi said. It's a strategy that emphasizes innovation, and allows Lenovo to bring enterprise customers the latest software-defined solutions without worrying about cannibalizing its own software, he said.

HPE is betting too heavily on its acquisition strategy, Cisco is protecting its long-held margins, and Dell EMC has too much on its plate to innovate in a rapidly changing IT market that is moving away from traditional sales models, Ghilardi said.

"They own the software," he said. "We don't. We worked before with SimpliVity. It was a very good relationship. HPE decided to buy them. Okay. Cool. Now we work more with Nutanix, or Pivot3 or DataCore, you name it, but we don't step into their space. We don't try to do it ourselves. We think innovation is going to be driven by small companies in this space. I challenge HPE to buy these companies and let them innovate. I spent 25 years at HP, and no disrespect, but unfortunately they don't have a great reputation for buying companies and managing them."

And while HPE is challenged to integrate and manage assets, other competitors struggle to innovate without sacrificing the margins they realize on legacy hardware, Ghilardi said.

"What's great about specific hardware is you make a lot of money. Ask Cisco. Or EMC," Ghilardi said. "It's a commodity, but it's not sold as a commodity. It's sold as perfect, and the only way to do it is this way and if you want to add more storage, as everybody does, you have no choice, just keep buying from me. This is the world of the past. The world is going somewhere else, and we can go to this somewhere else much faster and with less regret than a Dell, that just spent $65 billion buying EMC. There's nothing more traditional than EMC. It makes a lot of money, they have strong relationships with customers, but it takes a lot of energy and resources to protect that legacy particularly because the world is going the other way around. You try to win in the traditional data center, you go buy a traditional storage company. You go buy a traditional networking company. Why would you do that? That's the past. 10 years from now, we'll see if our strategy was right. I firmly believe we're doing the right things. "

Ghilardi envisions a future in which compute power is purchased and consumed much like a utility.

"It will be hyper-converged on-prem, and the rest will be in the cloud and you'll be able to go back and forth," Ghilardi said. "You'll decide what you're going to use out there, and what you're going to use at home. Larger, end-user data center will be part of fabric computing: I buy when I need more, but I sell when I don't need what I have. You can cut a deal one day with Azure or AWS where you say, 'During my peak application, I'll buy from you as long as when I am down in the valley in utilization of my own data center, you take it from me and sell it to somebody else.' These companies become, not just a host, but a broker. Do you care where the power for the lights in this room comes from? You don't. Why should you have to care where your compute comes from? It's there. It's available. Why do you need to own it?"

In order to begin taking advantage of the opportunities, Lenovo executives see in front of them, they've had to face a couple of failures, namely the go-to-market strategy for the System X server business and the structure of its channel program.

Ghilardi and other execs freely admit that the decision to sell System X servers using the same model the company uses for its world-dominating PC business was a considerable mistake. So, too, was maintaining separate non-tiered channel programs for its PC and data center portfolios.

"We were wrong," Ghilardi said. "I always say smart people know when they are wrong. They admit it, and they try to fix it. We took a little longer than we had to, but we figured it out. We designed a program with our partners; we did not design it by ourselves. We designed it, checked it, re-tuned it. It took us nine months to get it to market. We wanted to get everybody's feedback. We respect everybody, and we wanted to close every, single loop. It's something we didn't do well, and we fixed it."

The pieces are in place, Ghilardi and other senior leaders say, to move on from the haphazard and much-delayed integration of IBM's System X x86 server business and begin making Lenovo a bonafide data center power.

Lenovo in April organized its data center channel program into tiers for the first time, and made program rebates stackable, giving solution providers incentive to sell more of the portfolio.

The company intends to introduce tiers to its PC partner program "in a couple of months," Ghilardi said.

North America Channel Chief Sammy Kinlaw said Lenovo is bringing an average of 100 new partners into its program every month.

Kirk Skaugen, hired in November as executive vice president of Lenovo's data center group, is making the most of his mission to shake off the company's image as an enterprise also-ran.

"We're in the middle of another transformation of Lenovo," Skaugen said. "Now you're seeing some of the best minds in the industry – we just hired the ex-CIO at Intel to come on board – and talent from our competition coming over and we think it's because we can be the best software-defined company in the world. You're seeing some really good talent around the world that's not just data center experts, but channel experts, as well. People see us on a pretty steep rise over the next couple of years."

That's strong language from a company up against competition like Cisco, Dell EMC and HPE, but Skaugen, a 24-year Intel veteran and channel advocate who came to Lenovo last November, said Lenovo has a distinct advantage.

"Others in the market are trying to sell one more legacy system," Skaugen said. "Because we don't have that legacy system, we're not trying to protect a 65 percent margin business, and therefore we get viewed as more disruptive and a good partner to leap ahead with when you're ready to go into software-defined. For Lenovo, it's about velocity. Speed with direction. We have good velocity. The others have good speed, but I think we have good velocity. Our partnerships are second to none. Processors, operating systems, Intel, AMD, Red Hat, Microsoft, half a dozen storage partners. It's customer-driven and through the channel. It's an unbiased, baggage-free mentality."

Partnering rather than acquiring or developing could be "the only card left" for Lenovo, "but it's not a bad deal," said Michael Goldstein, CEO of LAN Infotech, a Ft. Lauderdale, Fla.-based solution provider that works with Lenovo."It kind of makes them different," he said. "If they just bought someone, they'd be the same as HP or Dell Technologies, and it's hard to go up against the Dell portfolio."

Goldstein is optimistic about LAN Infotech's future with Lenovo, however, saying he expects the company's Lenovo business to increase between 10 and 15 percent this year compared to 2016, driven primarily by ThinkCentre Tiny workstations, the X1 laptop line, and servers.

Goldstein also said Lenovo had come a long way. "They're getting right to the point, they're saying, 'You do this, you get that. Here's what's new, here's what you're going to see, here are the numbers,' and that's a difference," he said. "The stacking rebates, there's definitely a lot of money in that, and they're tracking it for me. That makes it easier, and it shows that they're really thinking like us. You feel like you're a big partner and that you're into the program."