IBM turns to local rival for help as China gets tougher for foreign firms

With the Chinese government turning up the heat on foreign IT vendors, citing security concerns, IBM is finding help from an unlikely source: a competitor, local server vendor Inspur.

On Friday, the two companies announced that Inspur would offer IBM’S DB2 and WebSphere Application Server software on Inspur’s high-end TS K1 systems.

In addition, the two companies will collaborate to develop new hardware systems for Inspur using IBM’s Power server chips. Earlier this year, Inspur became a member of IBM’s OpenPower Foundation, an alliance of vendors dedicated to developing the Power chip architecture.

Both companies will still compete in the server arena, but are working together because clients and partners demanded more technologies to analyze larger data sets, IBM said in an email.

While not well-known in the U.S., Inspur has been making news in China as it goes after IBM’s server business. In May, the vendor announced a marketing program called “I2I or IBM to Inspur” aimed at convincing customers to switch to the Chinese company’s systems.

It was an opportune time for Inspur to strike: Some saw IBM as signalling vulnerability when it announced it would exit the low-end server market in January, and sell its x86 server business to Chinese PC maker Lenovo. That deal has not yet closed.

Although the U.S. company was once a big player in China’s x86 server market, with close to a 20 percent share a year ago according to research firm IDC, IBM had also begun facing stiff competition from local rivals. By this year’s first quarter, IBM’s share of China’s x86 server market had fallen to 12 percent, matching Inspur’s share, which was up from just over five percentage points a year ago.

U.S. company Dell still leads the China’s x86 server market, with a 20 percent share, but local competitors including Lenovo and Huawei Technologies are growing fast, with a 13 and 14 percent share, respectively.

Increasingly, the Chinese government and state-owned businesses are showing signs they want to buy more IT products from local vendors in the wake of revelations about the U.S.’s spying programs. In May, the country said it would block companies from selling to China if their IT products failed to pass a “cybersecurity vetting system.”

But Friday’s partnership between IBM and Inspur could help, rather than limit, the U.S. company’s business in China. IBM has been trying to grow adoption of its Power server chips in a challenge to Intel’s own processor offerings.

“Inspur is a leading domestic Chinese IT provider and could help Power penetrate that fast­growing market,” wrote Karl Freund, a consultant at research firm Moor Insights and Strategy, in a research note

IBM’s OpenPower Foundation now has 53 members, 10 of which are from China, the company said on Friday.

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