IBM’s Q2 Server Sales: Let’s Do Some Math
August 4, 2008 Timothy Prickett Morgan
I have never understood why IT suppliers do not just come out and report their sales by product categories, but I suspect that we can blame the accountants and chief financial officers at those suppliers and the nervousness of the marketeers, who want to say as little as possible about how well or poorly they are doing in any product category. Anyway, because IT vendors only talk broadly and vaguely about their sales, IT consultants, Wall Street analysts, and wiseguy journalists are left each quarter to take a stab at trying to figure out actual sales for products.
Because the lips on Wall Street are lighter than a Long Island littleneck clam these days–and many of the talkative old guard analysts who tracked IBM have retired–it is tough to find someone who has come up with estimates for IBM’s server sales. I have been privy to their IBM financial models for years, however, and Big Blue is giving us enough information in its expanded Systems and Technology Group coverage to allow me to take a stab at reckoning revenues by product line within the group. If you have a few hours to spare and you like headaches, you can do this yourself. Luckily, you have a persistent cuss like me to help you sort it out, and unlike many journos, I ain’t afraid of math. Even the hard stuff that is not required to do a spreadsheet but which comes in pretty handy when you want to do 3D calculus. (I kinda ran out of interest at Fourier transforms in my electrical engineering class, to tell the truth. Girls are much more intriguing and equally challenging, and they like writers. ‘Nuff said.)
Let’s start at the top as we tear apart IBM’s STG sales in the quarter. As I explained in my analysis of IBM’s Q2 results two weeks ago, overall STG sales rose by 2 percent as reported to just over $5.2 billion. IBM said in its presentation charts that servers made up 67 percent of sales in the quarter, which comes to $3.49 billion, an increase of 11.2 percent in my IBM STG sales model. Retail Store System sales were flat (I have them down 7/10ths of a percent in my model) to $208 million, which is 4 percent of STG sales, and I have storage sales up 12 percent to $938 million, which is 18 percent of STG sales in the quarter. That leaves another $573 million in external tech sales, and this does not include the funny money that IBM counts as it transfers technology between its operating groups.
Now, because I have built past quarterly sales models for the z, i, p, and x server lines over the years based loosely on numbers that came from various sources and my own math on it, I can apply IBM’s reported sales growth or decline in past quarters to figure out where sales are in current quarters. Everything hinges, of course, on the assumption that some past numbers were correct. But now that IBM is giving a hard percentage for server sales within STG, it is now possible to work backwards through the models (as I am sure Wall Street is doing much as I am doing) to get a more accurate model. (This is the part I mean about the headaches.) In any event, when I do that for the past three years and make some assumptions about the split of Power-based server sales, here’s what I come up with for the second quarter of 2008:
As the lead story in this issue points out, Ross Mauri, general manager of the Power Systems division, did provide a tiny bit of color on i-related server sales in the quarter, but is absolutely unable to confirm these estimates. I did complain, as many of you undoubtedly have, that the way IBM has carved up Power Systems sales unjustly makes the i platform look weaker than it is, and that is why I will be building models from here on out to try to give everyone at least some numbers to hang their strategies on. There ought to be a law against this kind of thing. But, it gives me something to do and keeps me off the streets, so that’s probably a plus.
A couple of more points to make. IBM’s sequential sales–comparing Q2 to Q1 this year–were up on all fronts excepting X64 servers, which was expected given all the new mainframe and Power servers that rolled out as Q2 was ending beginning. If my numbers are right, System z sales were up 41.5 percent sequentially, System i sales were up 31.8 percent, System p sales were up 25.2 percent, and System x sales were nearly flat at a 6/10ths of a percent increase.
And if you want to look at the first six months of the year compared to sales in January through June in 2007, IBM’s System z sales are up only 4.9 percent, while System i sales are up 12 percent. System p sales are down 6.4 percent (yes, Virginia, Q1 was not a good quarter, hence the arbitrary Converged System p category to show a meager 2 percent growth in Q1), and System x sales are up 4.2 percent. Overall for the first six months, IBM’s server sales are up 1.6 percent for the six months.