Friday, February 7, 2014

An Awesome iWatch Is Apple's Greatest Challenge

Why isn't the Apple TV Apple's greatest challenge for the near future? It's iterative. There is less reputation at stake. Less innovation cred to be lost. But the iWatch? A stumble will open up the guts of Apple and indicate a fading company, capable of evolutionary design... but maybe not revolutionary products. Lots of Apple geeks are hoping this isn't the case.

There are two words I try to avoid connecting: "greatest" and "challenge." Clearly I've failed. I try to avoid this phrase because it reeks of hyperbole -- and yet here I am, typing it out in association with Apple's utterly mythical "iWatch."

Still, the more I look ahead, the more I realize that Apple's greatest challenge might be convincing a world that it can produce an iWatch that matters.

3 Key Reasons

Consider the abandonment of the watch. As cellphones became more and more ubiquitous, users realized that they told time very well. In fact, by connecting to cellular service towers, they automatically adjusted themselves for daylight savings time.

Better yet, as we traveled into different time zones, mobile phones adjusted. Watches lost their portable monopoly on time. People who wear watches tend to have a serious need for a wrist-handy clock, use their watch for adventure sports -- or more likely, style.

The second issue is mass market demand. Is there a vast consumer need for a smartwatch that will connect to your smartphone and show you messages and notifications? That will shoot video and let you read email? That will answer or launch a voice call? That will track your sleep and remind you to wear a rain jacket?

No. Not right now. Might that change? Of course, but only if a tangible need -- at the very least, a perceived need -- rises into global consciousness.

In 2014, demand just doesn't seem to be all that strong, despite a handful of smartwatches that have been trying to get a party going.

iWatch to Crash the Party?

Apple is most definitely late to that party. The Pebble line lit up the eyes of geeks, starting with a screamingly successful crowdsourced funding effort.

Apple's smartphone archnemesis Samsung delivered the Galaxy Gear (with a Gear 2 version looming soon); Sony delivered its SmartWatch 2; and upstarts like i'm Watch are producing some interesting options.

Meanwhile, Apple partner Nike has the popular fitness tracker bracelet, the Nike FuelBand.

There's other competition in the burgeoning health-band space, too. The most recent one to cross my path is Jawbone's UP24, which tracks how you sleep, move and even eat -- and through its smartphone-connected apps, presumably help you lead a healthier, more insightful life.

Apple has entered market segments before, redefining them with design, quality, ecosystems (stores, developer tools), and visionary leaps forward in technology and manufacturing. Can it deliver a brand new product that depends on style in addition to niche-like desire?

Apple Knows Style

Apple's design missteps, particularly under the steady hand of Jony Ive, have been few and far between. The first iPhone still looks good. A Tangerine iMac looks out of place in a flat-screen world, but the smooth curvy translucent lines? Still nice.

Fact is, day-to-day watches need to match a human's personality and identity, first and foremost. A secondary concern is the style and whether they are right for the occasion -- dressed up or dressed down, color, texture, waterproof or durable?

None of these challenges are impossible to meet, but they're hard. Maybe that's why Apple seems to be working away in its Cupertino bat cave, trying to make an iWatch more functional, powerful and useful than anything else out there -- which brings up a new point: Even if Apple's iWatch won't shoot out a spidery cable a hero could swing from, each new product that enters the smartwatch space raises the stakes for Apple. Why? There's more competition Apple needs to best -- or ignore in favor of a brilliant focus that will induce palm-to-forehead why-didn't-I-see-that-before slaps.

Even as competitors create better and better wearable bands, they're busy undermining the space through ideas that solve problems that don't exist... and terrible marketing. There's a Samsung video about a guy who woos a girl while skiing -- with his Galaxy Gear watch -- that is so freakishly bad that it makes me want to avoid all smartwatches lest I catch the disease depicted in the commercial. The disease? A strain of pure idiocy.


Meanwhile, what's Apple really doing? Apparently working like crazy. The company has hired numerous experts over the last year, presumably to help with the iWatch development, including a chief medical officer, biosensor engineers, a Nike design director, and most recently the rumor that Apple hired a sleep expert from Philips Research.

Plus, curved glass rumors persist -- not to mention a furious effort to produce sapphire glass. While a patent points to the obvious iPhone usage for super-strong glass, it might be even more important for a scratch-prone wearable device.

Other rumors have pointed to home automation uses for an "iWearable" device, but smartphones are already unlocking doors, running thermostats from afar, and dimming lights. The point is, the iWatch is potentially launching into a fast-moving environment.

Why Not the Apple TV?

So why isn't the Apple TV Apple's greatest challenge for the near future? It's iterative. There is less reputation at stake. Less innovation cred to be lost. But the iWatch? A stumble will open up the guts of Apple and indicate a fading company, capable of evolutionary design... but maybe not revolutionary products. Lots of Apple geeks are hoping this isn't the case.

As for me, I'm mostly curious. I haven't worn a watch in 10 years, much less needed an exercise band to tell me I've been busy. I'm Apple's best and worst customer rolled up into one guy: Will I want one?

IBM, Lenovo Deal Is All About Winning

Selling the x86 line to Lenovo makes perfect business sense for IBM, Lenovo and their respective customers and business partners. Lenovo has a proven record, experience in high volume x86 desktop hardware, and a long history of working with IBM. Customers and business partners can be confident that Lenovo has a very high probability of succeeding with the x86 server businesses.

Lenovo Group's US$2.3 billion deal to purchase IBM's low-end, commodity x86 Server portfolios, related resources and operations is an all-around win for everyone involved.

The sale of the IBM x86 servers has been rumored for well over a year, as Big Blue grappled with continuing pressure on its low-margin x86 servers.

In its most recently completed fourth quarter, IBM's revenue dropped 5.5 percent to $27.7 billion. Slumping hardware sales was the chief culprit for the revenue miss. IBM's x86 server sales declined by 16 percent in the fourth fiscal quarter alone, following seven straight quarterly revenue declines.

Under the terms of the agreement, Lenovo will purchase the following:

  • IBM's System x servers;
  • BladeCenter and Flex System blade servers and switches;
  • x86-based Flex integrated infrastructure systems;
  • NeXtScale and iDataPlex servers and associated software; and
  • IBM's blade networking and maintenance operations.


Additionally, Lenovo gets all of the development, sales and marketing, finance, legal, integrated supply chain, operations, IT, manufacturing, and service and support (maintenance) operations associated with the aforementioned assets.

Also as part of the deal, Adalio Sanchez, general manager for System x and Pure Systems in the IBM Systems and Technology Group, will move to Lenovo and assume the same role there.

Approximately 7,500 IBM employees worldwide -- including those based at major locations such as Raleigh, N.C.; Shanghai and Shenzhen, China; and Taipei, Taiwan -- will be offered employment at Lenovo. Since Lenovo's U.S. headquarters in North Carolina is close by IBM's Raleigh offices, it should be an easy transition for the majority of Big Blue workers.

Digging Deeper Into the Deal

IBM will by no means abandon its high-end server business. Following are additional important provisions of the deal:


  • IBM will retain its enterprise systems portfolio, including System z mainframes, Power Systems, Storage Systems and Power-based Flex servers, as well as the PureApplication, PureData and SAP Hana appliances;
  • IBM and Lenovo will enter into a broad-based strategic collaboration;
  • Lenovo will become IBM's preferred supplier of x86 server technology;
  • Lenovo will license, manufacture and resell IBM Storwize and tape storage technologies, the General Parallel File System, the SmartCloud Entry, elements of the x86 system software portfolios, and the Platform Computing portfolio;
  • Integrated systems software components will move to Lenovo;
  • Higher-level management tools like System Director and Flex Systems Manager will remain with IBM and be licensed by Lenovo;
  • IBM and Lenovo will work together on patches to IBM software required by Lenovo; and
  • Until the transaction is completed, the two companies will continue to operate independently.

The acquisition is expected to close later in 2014, pending regulatory approval. Once the transaction is complete, Lenovo will assume related customer service and maintenance operations. IBM will continue to provide maintenance delivery on Lenovo's behalf for an extended period of time, so customers should see few or no changes in their maintenance support.

Both the IBM and Lenovo executives enthusiastically applauded the deal.

"The divestiture [of the x86 server line] allows IBM to focus on system and software innovations ... such as cognitive computing, Big Data and cloud," said Steve Mills, IBM senior vice president and group executive of the Software & Systems Group.

The acquisition of IBM's x86 server portfolio will enable Lenovo to increase its current 2 percent niche market in servers by sevenfold to 14 percent, noted Peter Hortensius, senior vice president at Lenovo and president of its Think Business Group.

To accomplish that goal and "generate costs synergy," Hortensius said, Lenovo will need to move most of the manufacturing from IBM's existing facility in Virginia to Asia, while keeping some R&D in the U.S.

The Takeaway

Lenovo's acquisition of IBM's low-end, commodity x86 server portfolios is a tactical and long- term strategic win not only for IBM and Lenovo, but also for their respective business partners, customers, and the 7,500 IBMers who will make the move to Lenovo.

IBM and Lenovo have had a long, productive working relationship. Lenovo in 2005 bought IBM's PC business, including the popular ThinkPad brand, for $1.7 billion; by 2012, Lenovo had surpassed all rivals to become the world's top PC vendor.

IBM is following the money and the market trends. IBM's server business is the world's second-largest, with a 22.9 percent share of the $12.3 billion market in the third quarter of 2013, according to Gartner.

In fact, IBM's System z Enterprise mainframe and high-end server market share and demand remain strong and solid. Overall, IBM mainframes have in excess of 90 percent market share in that segment.

The sale of the struggling x86 server line frees IBM to focus on what it does best: enterprise products and services -- most notably, cloud computing and services, and Big Data Analytics via its soon-to-be-expanded Cloud Computing group and its newly formed Watson Business Unit.

No company has broader, deeper enterprise and services portfolio than Big Blue. IBM's sale of its x86 Server business for $2.3 billion pays for its investment earlier this month of $1 billion in the new Watson BU headquartered in New York City, as well as the $1.2 billion it's investing in expanding its Cloud Computing portfolio in 40 global data centers in 15 countries on five continents.

Is the $2.3 billion sale much less than IBM's rumored $6.5 billion asking price for the x86 servers last summer? Probably. It was IBM's decision to sell the x86 commodity server portfolio and associated services and make a swift, clean exit. The alternative was to retain the x86 server line and let it continue to bleed revenue and drain resources.

IBM is simultaneously shedding unprofitable products and thereby effectively funding its expansion into leading-edge and emerging market segments.

Selling the x86 line to Lenovo is an intuitive and obvious move that makes perfect business sense for IBM, Lenovo and their respective customers and business partners. Lenovo has a proven record, experience in high volume x86 desktop hardware, and a long history of working with IBM. Customers and business partners can be confident that Lenovo has a very high probability of succeeding with the x86 server businesses just as it has with IBM PCs.

Finally, there is the human element. The IBM/Lenovo x86 agreement also positively impacts 7,500 Big Blue employees globally. They can transition to Lenovo, which also has offices in Raleigh, N.C., so few, if any, will have to move.

The IBM/Lenovo deal opens the door wider for IBM to expand its footprint in China and the Pacific Rim.

In Conclusion

To sum up, IBM's sale of its x86 business to Lenovo is the best possible outcome for all concerned.

Both companies must still execute once the transaction gets the necessary regulatory approval and closes. However, based on past history, the likelihood of success is high.

IBM will be able to forge ahead unhindered in its quest for continued innovation in enterprise systems and in the highly competitive cloud computing arena.

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