EMC, Lenovo Going After Multibillion Dollar, Post-PC China Market

EMC is a bear of a company to get your arms around. So let’s throw in another big global company, plus the world’s most populous country, and see where that gets us.

Yes, Hopkinton, MA-based data storage giant EMC (NYSE: EMC) announced yesterday a far-ranging partnership with personal-computer maker Lenovo (HKSE: LNVGY), which has dual headquarters in Beijing, China, and Morrisville, NC. The upshot of the multi-year deal is that the companies will work together to develop and sell servers and storage systems through their respective channels and in their respective markets—in particular, China for Lenovo. EMC and Lenovo also have set up a joint venture, based in various locations around the world, to develop network attached storage technology for small and medium-size businesses.

No financial details or headcounts were given, but Lenovo chairman and CEO Yuanqing Yang said in a press conference that the total value of the partnership would be measured in “billions” of dollars, not millions, over the coming years. The conference in Beijing (see photo above) also included EMC’s chief executive Joe Tucci and president Pat Gelsinger, who will become VMware’s CEO next month.

The deal seems to help EMC expand its presence in China—and sell more storage products to a huge potential market—while it also helps Lenovo move further beyond its PC business into networking and storage. “It’s a symbiotic relationship,” says Rod Mathews, EMC’s senior director of business development. “We’re really excited about the server development program.” He adds, “We’re strong in different areas. We have complementary ways to attack this market.” (Mathews came to EMC through its acquisition of Data Domain; before that he was a veteran of NetApp.)

And EMC is no stranger to China. The 55,000-employee firm has invested more than $1 billion in the Chinese market since 2007. In the last quarter, EMC’s revenue in the Asia-Pacific region was $748 million—14 percent of the company’s total revenue—and that represented an all-time high. (The company doesn’t break out its China revenue publicly.) Together, EMC and its affiliated virtualization software firm VMware have more than 3,500 employees in China, according to a spokesman. Lenovo, for its part, has some 2,500 employees in the U.S. and a worldwide staff of 27,000.

Lenovo’s server business is doing OK in China, but “we felt like we needed to grow there and take it worldwide,” says Peter Hortensius, the company’s senior vice president of product. “We found EMC, and EMC found us.” (Hortensius, a 17-year veteran of IBM, is based in Lenovo’s North Carolina office but says he goes to China twice a quarter.)

An international partnership between two tech giants in a competitive sector—what could go wrong? The challenge will be to “make sure the working teams really start operating with the intent of the deal, not just what words on a piece of paper say,” says Hortensius. “I have a lot of confidence in that. The complementary fit keeps us aligned by itself.” On the sales front, Mathews adds, “Both companies are channel-oriented in the way we go to market. The model is very favorable for our shared channel partners. It’ll be very natural.”

Stepping back from the specifics, this week’s deal touches on some big themes. One, as PC sales continue to fall relative to other devices, hardware companies like Dell, Hewlett-Packard, and Lenovo are going deeper into servers and networking systems. Two, New England companies and innovators may need to think less about Silicon Valley and more about places like Beijing and Shanghai for talent, capital, customers, and partners. And three, U.S. tech companies have learned a lot about the Chinese market from the experiences of IBM, Microsoft, Google, Intel, and the like.

“The China marketplace is the same, but a little different from everywhere else,” says Hortensius, with a touch of understatement. Being “focused on relationships is important,” he says. EMC’s Mathews adds, “For us, you really can’t underestimate the importance of that locality—having local partners that have critical mass and momentum in the market.”

And that’s the key to this deal, in my mind. EMC now has a big, Chinese-owned partner in its corner to help promote its expansion in the region. What it does to nurture that relationship remains to be seen—but will go a long way toward determining the global future of two of the biggest tech companies around.

Gregory T. Huang is Xconomy's Editor in Chief. E-mail him at gthuang [at] xconomy.com. Follow @gthuang

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