SSB Takes a Closer Look at IBM's Server Sales for 2001

by Timothy Prickett Morgan

IBM's Server Group reported total revenues of $4.1 billion for the quarter, down 13 percent from last year's fourth quarter. Pretax income in the Server Group fell by 18 percent to $719 million. SSB reckons that revenues from IBM's sales of xSeries Intel-based servers dropped by 21 percent, from $710 million in 2000 to $560 million in 2001. This had an obvious downward effect on IBM's server profits, and one that even zSeries mainframe sales approaching $1 billion could not counter-balance. Pricing pressure in the Unix/RISC server markets was also severe enough to give server profits a haircut. If IBM had not all but driven rivals Amdahl and Hitachi out of the mainframe business, and if its zSeries line were still subject to market pressures, pretax income in the aggregate Server Group would have fallen even more. The interesting piece of information from IBM was that processing capacity to support Linux on mainframes accounted for 12 percent of MIPS shipped in the fourth quarter. If IBM had not been pushing Linux on its mainframes, it would not have seen sales rebound, but rather decline. This is one reason why IBM is hell-bent for leather to get Linux running on all of its servers.

SSB reckons that IBM sold $625 million in iSeries and AS/400 servers and upgrades in the fourth quarter, down 16 percent from last year, when IBM sold, according to SSB, $745 million in iSeries and AS/400 equipment. IBM's zSeries mainframe sales were $995 million in the fourth quarter of 2001, up 4 percent from $990 million in last year's fourth quarter. RS/6000 and pSeries server sales, while coming in at a respectable $905 million in the fourth quarter of 2001, were still down 23 percent from the $1.2 billion in sales IBM booked with its Unix server line in that quarter in 2000.

While sales in each individual eServer product line are interesting from the perspectives of customer adoption and software developer loyalty, what really matters from IBM's point of view is how healthy the Power family of hardware platforms is.

As the chart shows, even though the combined sales of Power-based Unix and OS/400 servers is well off the high set in the fourth quarter of 2000, the Power platform is still the biggest revenue generator for IBM's eServer group, and as long as this is the case, there will be an iSeries platform and a pSeries platform, or, more precisely, a quasi-unified hardware platform that can support AIX, Linux, or OS/400. The mainframe had a great quarter at the end of this year, but the Power platform, by Guild Companies' estimates, had revenues that were almost 50 percent larger than the zSeries line.

When you look at the full year, IBM's xSeries sales were off 14 percent for the year to $1.95 billion, according to SSB. Mainframe revenues for the year were up 13 percent to $3.3 billion, a level they last hit in 1999. Mainframe sales were $4.4 billion in 1998 and $4.9 billion in 1997. In the mid-1990s, IBM typically sold around $6.5 billion in mainframes, and in the early 1990s IBM typically sold somewhere between $10 billion and $11 billion in mainframes. The mainframe may have rebounded a bit in 2001, but it has fallen from a lot higher levels. By SSB's estimates, IBM's pSeries and RS/6000 sales for 2001 were down 5 percent to $2.9 billion, and I reckon that commercial PowerPC-Power server sales were off by only 1 percent to around $2.7 billion. (More and more supercomputer customers are clustering commercial servers rather than buying IBM's RS/6000 SP PowerParallel supers, which is why the commercial Power line wasn't hurt as bad, in my estimation.) iSeries sales, according to SSB, were down 10 percent, from $2.4 billion in 2000 to $2.15 billion in 2001. Revenues from the AS/400 line were $3.2 billion in 1998, according to SSB, and dropped by 23 percent in 1999 to $2.5 billion.