Why IBM Should Dump Its Low-End Server Business On Lenovo

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IBM has no stomach for low-margin businesses, which is why Big Blue may be ready to dump its commodity server business — i.e., servers that run on Intel-compatible "x86" processors. If the reported talks with Lenovo lead to a sale, the move would mark IBM's final break with the low-end computer business.

A Win-Win

The deal would be a win-win for both companies. Lenovo, which bought IBM's PC business in 2005 for $1.75 billion, would immediately become the third largest maker  of x86 servers, behind market leader Hewlett-Packard and runner-up Dell. Thanks to its market clout in its homeland, the Chinese company has risen to become the second largest PC maker worldwide, according to the latest numbers from IDC. 

Adding x86 servers to its portfolio makes perfect sense for Lenovo, which has shown in PCs that it can do well in a low-margin, commodity market. For IBM, the opposite is true. The company's strength in hardware is in selling expensive — and profitable — mainframes.

IBM's mainframe business is the reason the company leads the global server market, at least in revenue terms. To give you some sense of how expensive these systems are, IBM's "System z" mainframe represented more than 12% of all server revenue worldwide in the fourth quarter. Because of a refresh in the product line, along with the introduction of new products, such as the zEnterprise, revenue from IBM's mainframe business rose almost 56% year over year in the quarter, according to IDC.

"Although revenue results for System z are traditionally heavier in the fourth quarter, this accelerated acquisition shows the breadth and depth of the IBM mainframe installed base," Jean Bozman, analyst for IDC said in a statement.

Lenovo would be a good buyer for IBM, because it doesn't compete in any of the markets IBM cares about, namely software and IT services. That wouldn't be the case if HP or Oracle were the buyer.

Disruption In Server Market

IBM may also have decided it wants no part of the disruption heading for the server market like a freight train. The increasing number of companies adopting cloud computing will mean fewer server sales, Larry Dignan points out at ZDNet. In addition, Internet companies with large server farms, such as Facebook and Google, buy customized white-box servers, which can't be good in the long term for traditional sellers, like HP, Dell and IBM.

While no one outside of IBM or Lenovo know how much the business would fetch, someone familiar with the talks told Bloomberg that the price would range from $2.5 billion to $4.5 billion, depending on the assets and liabilities included.

Lenovo Is Fired Up And Ready To Go

Not everyone agrees that IBM would be doing itself a favor by selling its x86 business. Gartner analyst Sergis Mushell says that without x86, IBM only non-mainframe servers would be its lineup of machines that run its Power processors — and that demand for those products is shrinking.

In other words, IBM would miss out on the opportunities to build systems based on x86 "while [its Power] architecture's ecosystem is shrinking," Mushell said. "Do you see how it would not make a lot of sense?"

Lenovo, meanwhile, is hungry to move beyond the PC market. The company announced last year a partnership with EMC in which Lenovo planned to introduce x86 servers that would include EMC storage systems. As part of the deal, Lenovo agreed to sell EMC networked storage products in China.

Given the jumpstart it would get from owning IBM's x86 business, Lenovo may be willing to make an offer that's hard for IBM to refuse.

Why Computing Won't Be Limited By Moore's Law. Ever

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In less than 20 years, experts predict, we will reach the physical limit of how much processing capability can be squeezed out of silicon-based processors in the heart of our computing devices. But a recent scientific finding that could completely change the way we build computing devices may simply allow engineers to sidestep any obstacles.

The breakthrough from materials scientists at IBM Research doesn't sound like a big deal. In a nutshell, they claim to have figured out how to convert metal oxide materials, which act as natural insulators, to a conductive metallic state. Even better, the process is reversible.

Shifting materials from insulator to conductor and back is not exactly new, according to Stuart Parkin, IBM Fellow at IBM Research. What is new is that these changes in state are stable even after you shut off the power flowing through the materials.

And that's huge.
Power On… And On And On And On…

When it comes to computing — mobile, desktop or server — all devices have one key problem: they're inefficient as hell with power.

As users, we experience this every day with phone batteries dipping into the red, hot notebook computers burning our laps or noisily whirring PC fans grating our ears. System administrators and hardware architects in data centers are even more acutely aware of power inefficiency, since they run huge collections of machines that mainline electricity while generating tremendous amounts of heat (which in turn eats more power for the requisite cooling systems).

Here's one basic reason for all the inefficiency: Silicon-based transistors must be powered all the time, and as current runs through these very tiny transistors inside a computer processor, some of it leaks. Both the active transistors and the leaking current generate heat — so much that without heat sinks, water lines or fans to cool them, processors would probably just melt.

Enter the IBM researchers. Computers process information by switching transistors on or off, generating binary 1s and 0s. processing depends on manipulating two states of a transistor: off or on, 1s or 0s — all while the power is flowing. But suppose you could switch a transistor with just a microburst of electricity instead of supplying it constantly with current. The power savings would be enormous, and the heat generated, far, far lower.

That's exactly what the IBM team says it can now accomplish with its state-changing metal oxides. This kind of ultra-low power use is similar to the way neurons in our own brains fire to make connections across synapses, Parkin explained. The human brain is more powerful than the processors we use today, he added, but "it uses a millionth of the power."

The implications are clear. Assuming this technology can be refined and actually manufactured for use in processors and memory, it could form the basis of an entirely whole new class of electronic devices that would barely sip at power. Imagine a smartphone with that kind of technology. The screen, speakers and radios would still need power, but the processor and memory hardware would barely touch the battery.
Moore's Law? What Moore's Law?

There's a lot more research ahead before this technology sees practical applications. Parkin explained that the fluid used to help achieve the steady state changes in these materials needs to be more efficiently delivered using nano-channels, which is what he and his fellow researchers will be focusing on next.

Ultimately, this breakthrough is one among many that we have seen and will see in computing technology. Put in that perspective, it's hard to get that impressed. But stepping back a bit, it's clear that the so-called end of the road for processors due to physical limits is probably not as big a deal as one would think. True, silicon-based processing may see its time pass, but there are other technologies on the horizon that should take its place.

Now all we have to do is think of a new name for Silicon Valley.