Lenovo Forges Ties With EMC to Increase Storage Revenue

Lenovo Group Ltd. (992), the world’s second-biggest personal-computer maker, agreed to ally with EMC Corp. (EMC) to help boost sales of storage equipment and servers that run corporate networks.

As part of the deal, Lenovo will resell machines made by EMC, the biggest maker of storage devices, Peter Hortensius, head of Lenovo’s product group, said in an interview. The sales will start in China then move abroad, he said.

The agreements, announced in Beijing today, help Hopkinton, Massachusetts-based EMC widen its foothold in China, the world’s second-largest economy. Lenovo gets to expand in products besides personal computers and add sales outside Asia.

“We’ve been looking for an opportunity to grow our server business outside of China as well as get into more commercial products than just our PCs,” Hortensius said by phone today. “EMC has some interests that are very complementary to ours.”

The companies are also forming a joint venture that will help them sell storage equipment to small and mid-sized businesses. Beijing-based Lenovo will own 51 percent of the venture after contributing an undisclosed cash sum. EMC, chipping in assets and resources of the Iomega storage business, will own the remainder.

Server Capability

The reseller agreement focuses on network storage, and it replaces a partnership EMC had with Dell Inc. (DELL)

“We think Lenovo will copy Dell’s success in the server business, so this is positive in the long term,” said Christine Wang, a Taipei-based analyst at Daiwa Capital Markets. “This is good for both sides. Lenovo will gain sever capability and expand its server business in China. EMC will expand storage business in China as its current channel in China is weak.”

EMC’s shares fell 0.3 percent to $26.14 at the close in New York today. The shares have gained 21 percent this year. Lenovo climbed 6.9 percent, the largest advance since Jan. 19, to HK$5.75 at the close in Hong Kong trading.

The earlier partnership was terminated last year after Dell became a rival by entering the storage market, said Joel Schwartz, EMC’s senior vice president for global new business development. The company is looking to China as a source of growth this year amid ebbing demand in regions such as Europe, David Goulden, EMC president and chief operating officer, said in an interview last week.

China Growth

“People say ‘Well, China is slowing,’ but China’s GDP will still grow at a healthy rate this year, albeit perhaps not as healthy as people expected last year,” Goulden said. While EMC doesn’t break out revenue from China, Goulden said the country is probably EMC’s biggest in the Asia-Pacific region.

EMC and Lenovo will also work together on servers to be sold by Lenovo and eventually embedded in EMC storage equipment.

The partnership will not be material to either company’s earnings in the current fiscal year, the two said in a statement.

“EMC is building out its China operations, and is partnering with Lenovo in order to leverage its significant client base,” said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong. “The fit is good. China will be the test-bed for the partnership before taking it overseas.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

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