Some Insight Into IBM's Server Sales for Q3

Published: October 26, 2006

by Timothy Prickett Morgan

Kudos once again to Richard Farmer, the lead IT analyst at brokerage house Merrill Lynch, for peeling apart IBM's financial results for the third quarter of 2006. As usual, Farmer has estimated what each of the four IBM server lines brought to the top line in the quarter.

The System i5 line brought in, according to Farmer's estimates, about $301 million in sales in the quarter, down 22 percent compared to the $388 million in sales from the third quarter of 2005. While this number was pretty low, it was not as bad as in the first quarter, when IBM sold only $236 million in i5 iron. The second quarter of 2006 was, in the wake of new product announcements, a little better; in Q2, IBM pushed $319 million in i5 gear, which was 10 percent lower than the $342 million in sales Merrill Lynch believes IBM had in the same quarter of 2005.

For the third quarter, Farmer and his team were expecting IBM to book around $353 million in i5 sales, which would have still been a decline, but a much smaller one. (How refreshing to see analysts coming clean on their estimates before the numbers become public and showing how far off they were.) Merrill Lynch undershot its guess for mainframe sales by 26 percent compared to where they actually came in, at $956 million, during the quarter. And System p5 Unix server sales beat its estimates by 5 percent, too, hitting $930 million in the quarter. System x server sales were about where Merrill expected, with $1.08 billion in sales. Yes, IBM now makes almost as much money from selling X86 and X64 servers as it does selling mainframe or Power servers.

Looking ahead, anyone would be a bit hesitant to speculate a big upturn in i5 sales. Farmer's projections for the fourth quarter peg i5 sales at $444 million, down 2 percent, with mainframe sales down 20 percent to $1.12 billion. (IBM had a killer fourth quarter last year for mainframes, thanks to the System z9 EC machines shipping in volume.) Merrill Lynch is also expecting System p5 sales to hit $1.43 billion, up 15 percent, and System x sales to hit $1.3 billion, up 11 percent.

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