Merrill Lynch Estimates IBM X64 Server Sales in Q1

Published: May 2, 2006

by Timothy Prickett Morgan

Because IBM doesn't give out sales figures for its various server product lines as part of its quarterly financial results, we have to rely on the sales models developed by analysts like IDC and Gartner or brokerage houses like Merrill Lynch to try to get a sense of what happened in Big Blue's server businesses. IDC and Gartner tend to look back a quarter, but Richard Farmer at Merrill Lynch got his estimates out the day after IBM reported its financials. And the numbers are interesting.

Two weeks ago, IBM said that its xSeries and System x line saw sales increase by 10 percent in the quarter thanks to big boxes and blades, and price pressure in the United States. IBM's X86 and X64 server volumes were up 20 percent, and blade server revenues and shipments were both up 45 percent. According to Farmer's spreadsheets, IBM's xSeries server sales were $954 million, about $69 million higher than Farmer was expecting. Farmer's models show that IBM did better than he expected with its iSeries-System i midrange line, with $237 million in OS/400 server sales, which was 5.4 percent higher than he expected. If iSeries sales were disappointing to Farmer, imagine how the mainframe disappointed, with Farmer expecting $739 million in sales, but IBM only bringing in $555 million. pSeries Unix sales were also lower than Farmer expected at $733; he was anticipating that IBM would do $846 million in sales in the first quarter. All told, Merrill Lynch was expecting IBM to take in $3.398 billion in server sales, but reckons that it actually brought in $3.197 billion, 2.8 percent lower than expected.

Looking ahead, Farmer expects that IBM will push over $4.5 billion in System x servers in 2006, up 10 percent over 2005's sales levels, meaning not only that X64 servers will be the fastest-growing server platforms that IBM sells, but also its highest revenue producer. Farmer expects IBM to come close to $5 billion in X64 server sales in 2007 and $5.4 billion in 2008. Not only will the X64 server business grow twice as fast as IBM's overall server business in Farmer's models, it will basically be the server growth engine for IBM. Farmer is expecting a rebound in mainframe sales in 2008 (for no good reason I can think of), continuing declines in OS/400 servers, and flat sales of Unix servers.