In a Breaking Analysis segment in theCube discussing the joint announcement by IBM and Lenovo of the $2.3 billion sale of System x today, Wikibon CEO David Vellante, CTO David Floyer, and Principal Research Contributor Stuart Miniman disagreed on the wisdom of the sale.

IBM’s x86 business has been shrinking, with a double digit decrease in the last quarter, hurting IBM’s bottom line, Miniman argued. All the major traditional vendors are feeling this, as the Taiwanese white box manufacturers have taken over a large portion of the one big growth market for x86 — the huge Web-scale companies. The only exception has been Cisco, which has attacked the high performance area of the market, IBM’s sweet spot.

“I think this is a good move,” Miniman said. “IBM competes through software and cloud services and other solutions. It does not have differention and low-enough margins in x86.” Lenovo, on the other hand, focuses on high efficiency and low costs, which has allowed it to grow the PC business it bought from IBM steadily to a leadership position.

Floyer agreed that in the short term the sale frees IBM to focus on software and service, and that this is a good deal for Lenovo. However, he argued, the future of the systems business is in converged systems combining compute, storage, networking and software in a single box. To be successful, that converged system must be highly integrated with cost driven out through out the system. By selling its x86 servers, IBM has lost the advantage that Amazon, for instance, has of being the sole manufacturer of the entire stack. Different server manufacturers will have different microcode and integrate services such as backup differently, so that a converged system built from piece parts from different vendors can never be as closely integrated as one built entirely by a single company.

Close partnership

Miniman countered that the close partnership that is part of this announcement can provide that level of integration. He noted that as part of the deal Lenovo will OEM IBM storage, putting the continuation of its deal with EMC into question. And IBM will continue working on Windows and Linux development. It also will leverage Open Systems, where it has made a major investment and fully participates. Amazon, in contrast, uses some Open Stack code but does not contribute back to the community and is actually losing software engineers because of that.

Miniman also speculated that internal incentives to use IBM servers in its cloud data centers may be hurting its cloud service pricing and margins. This sale will release the cloud services division to buy lowest-cost servers, while Lenovo will apply its production efficiencies to bring System x pricing in line with the commodity market.

“I think IBM can do more with services and software,” Miniman said. “They don’t need to own their own x86 servers, they can partner closely with Lenovo and also use servers from other suppliers.”

Floyer, however, remained unconvinced and ended the segment by saying, “IBM’s move away from systems to being a pure service play with a little bit of software that they can sell to other people in my view is a strategic mistake.”