Chasing Clouds

Virtual clouds have announced the start of Phase II of the Networked Era: good news for Lenovo, but what about HP, IBM and Dell?

If you haven’t heard of Lenovo, yet, you probably will in the next few years. History shows us that with economic wealth comes commercial colonialism – globalisation is the more politically correct term – and as China has grown in economic statue it has projected itself out into the world through many of its distinctive commercial initiatives. One such is Lenovo, started by 11 guys from the Chinese Academy of Sciences in 1984, at the encouragement of the government, in order to distribute imported computers.

Well, Lenovo has come a long way since then and today it is the world’s second largest PC maker, for now at least; I doubt it will be long before it is number one. Having already mopped-up IBM’s PC division some years ago, and along with it the Thinkpad brand, it has now done a deal with EMC, a leading US storage company, to enter the storage market for the first time, challenging HP, IBM  and Dell in this space. With huge market power at home it is going to focus there initially, before heading over to the US to tackle the incumbents on their own turf, in “a couple of years time” it seems.  HP, IBM and Dell are currently the world’s largest storage manufactures and between them have a combined global market share of 72%. At the last count there were $56Bn of server, and $25Bn of storage, revenues annually.

Why is this noteworthy? Well, in case you haven’t noticed, everything is happening in the clouds these days.  Surely you have heard of cloud computing? If you don’t know, cloud computing, is the use of computing resources, both hardware and software that are delivered as a service over a network, usually the internet – this could be anything from storage, to processing of application software hosted on a remote device rather than software located more closely to you, or on your own desktop – giving us Application Service Providers and Software as a Service.

I happen to have quite a few software clients. Few of them are not at least thinking about cloud computing these days and most have taken some pretty big initiatives to make sure that the appearance of these clouds doesn’t caste a dark shadow over their business. If you are in application software and not using meteorological metaphors these days your VC backers won’t be pleased; it is a bit of a technological bandwagon, a bubble of sorts that, like all bubbles, will burst soon enough to drench the losers.  John Gage, one of the first employees of Sun Microsystems, who once said “the network is the computer”, should be pleased with his prescience. To my way of reckoning we are not even half way into the Network Era, and demand for network infrastructure, servers, and storage is likely to grow – just look at Cisco, that supplies related networking kit; its recent results beating estimates, in spite of these recessionary times.

With consummate market nous Lenovo is going to focus on the core volume server market that accounts for something like 60% of demand. It’s success in the server market is likely to mirror its success in PC’s and whilst these clouds have a silver lining for Lenovo they will seem like storm clouds soon enough for the current dominant US market players. Alas, they are not dominate just because they are great companies and they operate in the “land of the free” their success to date reflects the economic power of the US, but the balance of power has been changing now for some time and it continues to change. Since introducing economic reforms in 1978 China has grown to become the world’s second largest economy, second only to the US – which is still more than twice its size – but China’s economy is still growing much faster. Until that changes Chinese enterprises like Lenovo will surely continue to win global market share and eat into the US dominance in these sectors.



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