Why IBM Is Trying To Surf The Linux Wave With Power Systems

June 11, 2012 Timothy Prickett Morgan

If you are wondering why IBM is all hot-to-trot with its new PowerLinux machines, which are Power Systems servers tweaked to only run Linux and with lower hardware and software prices than regular Power Systems iron that runs AIX and IBM i, then you need look no further than the latest server numbers from IDC. Sales of Linux-based machines shot up like a rocket, thanks to some big supercomputer and hyperscale cloud deals and are outpacing the market substantially.

The PowerLinux machines made their debut back in April and offer customers who only run Linux on the machines substantial price cuts on CPU, memory, and disk capacity compared to plain vanilla Power Systems. The aim is to take pricing off the table when comparing two-socket Power7 boxes against two-socket machines sporting Intel‘s latest Xeon E5 processors.

In the quarter ended in March, IDC reckons that Linux-based machines accounted for $2.4 billion in revenues, an increase of 16 percent over the year-ago period and giving Linux-based iron a 20.7 percent share of the server pie in the first quarter. And just to wake you up on how much growth that is, consider that the overall server market had a 2.4 percent revenue decline in the first quarter, falling to $11.81 billion. Let’s put that another way: If Linux is taken out of the picture, the remainder of the server market actually fell, in aggregate, by 6 percent to $9.4 billion. There’s a 22 point spread between Linux and the rest of the market.

And while IBM likes to talk about how much market share it is gaining in the Unix racket with its Power Systems-AIX combo, IDC thinks IBM’s Power Systems Unix server sales were actually down 3.7 percent in the quarter even though it did gain 6.3 points of market share because Oracle and Hewlett-Packard are duking it out in the courts and in the data center over the fate of Itanium, which has had an adverse and dramatic downdraft effect on HP’s sales of Integrity and Superdome servers running HP-UX. Oracle has also made no secret of the fact that it wants to focus on profitable server sales and has been perfectly happy to walk away from Sparc and X86 system sales where the margins are not there. IBM, if you look closely at the numbers in the most recent quarters, seems perfectly happy to sacrifice some margins to close server deals and keep the revenues coming in.

IDC tracks factory revenues, not end user revenues like market researcher rival Gartner does, so the numbers are always a bit different. IDC also takes a stab at trying to figure out what the dominant operating system on a machine is to give a sense of which platforms are waxing and waning each quarter.

Windows-based servers only showed 1.3 percent revenue growth in the quarter to $5.9 billion, but gained 1.8 points of revenue market share despite the anemic growth because Unix and proprietary platform sales fell so dramatically by comparison. Windows machines accounted for 50.2 percent of all revenues and utterly dominate shipments. IDC thinks that the Unix server biz declined by 17.2 percent in Q1, falling to $2.2 billion and falling to third place behind Linux in terms of aggregate sales. Even if you want to be generous and call Linux a kind of Unix, the aggregate Uni-linu-x market would only be worth $4.6 billion, and would have declined by 2.7 percent. There seems to be little question that Linux is hammering on Unix, and if we are not careful, IBM i might get caught in the crossfire.

If you do the math, servers running other operating systems not considered Windows, Unix, or Linux accounted for $1.31 billion in sales and saw a drop of 15 per cent. Most of that is still IBM mainframes with a smattering of other mainframe and other proprietary boxes; it is not clear if this number includes IBM i sales, but it should.

Interestingly, servers not based on X86 processors–that means Power, Itanium, Sparc, System z, and other CISC or RISC chips–fell by 16.1 percent, to $3.4 billion, the lowest level ever reported by IDC since it has been tracking the market. Intel, which wants to double its Data Center and Connected Systems chip revenues to $20 billion by 2015 (compared to the 2010 number), wants that non-X86 revenue to go to zero–and very likely counting Itanium, too, despite all of its posing in the press. X86-based server sales rose by 4.5 percent in the quarter, to $8.4 billion, and shipments of X86 machines were up 3.2 percent to 1.9 million units. Across all types of processors, server shipments worldwide in the first quarter were up 2.7 percent to 2 million units. A very small number of machines are driving that $3.4 billion in non-X86 server revenues.

Blade server form factors accounted for $2 billion in sales in the first quarter, up 7.3 percent, and shipments rose by only 4.8 percent, so the average selling price for blades is on the rise. Sales of density-optimized servers, dominated by machines made by Dell and HP for hyperscale Web and supercomputer customers, rose by 38 percent to $430 million, according to IDC; shipments of these boxes, which are choppy from quarter to quarter, were up by 29.8 percent to 152,630, according to Jed Scaramella, research manager for enterprise servers at IDC. Some of this was Facebook setting up new machines in its North Carolina data center; HP and Bull also closed some big cloud deals in the quarter, helping pump up the numbers, Scaramella told me.

The way IDC stacks up the money, HP came out on top in the first quarter, with $3.46 billion in revenues across all server types, but falling by an alarming 9.8 percent because of the Itanium system declines. IBM, which is struggling with the tailing off of the System zEnterprise mainframe sales as they come to the end of their cycle and which is also seeing Unix system declines (at least the way IDC counts the boxes and cash), fell by 7.3 percent in the quarter to $3.22 billion in revenues. Dell, which only sells X86 boxes (if you don’t count some experimental and custom ARM machines it just announced two weeks ago, raked in $1.84 billion in sales for servers in Q1, down only 2 points. Oracle slid 7.3 percent to $718 million as Sparc sales collapse and X86 “engineered systems” sales are not enough to fill the gap. Fujitsu took the fifth spot, with sales of $614 million and bounced back 7.3 percent because its Q1 2011 was adversely impacted by the earthquake and tsunami in Japan a year ago.

While you can’t see it, in the top five numbers from IDC, Scaramella tells me that server upstart Cisco Systems had a great quarter, with revenues rising 70 percent to $330 million. Silicon Graphics, which concentrates on supercomputer and hyperscale cloud deployments, had a $100 million quarter. All told, those not in the top five posted $1.95 billion in sales, up 25.8 percent.