IBM’s Server Business Has Its Downs In The First Quarter

June 2, 2014 Timothy Prickett Morgan

The good news is that server shipments continued to rise in the first quarter, despite a slew of pressures weighing down some of the economies of the world. The bad news is that revenues are still dropping.

In the first quarter, the box counters at Gartner reckon that server unit shipments rose 1.4 percent to 2.36 million machines, but sales were off 4.1 percent across all server sizes and types, with only $11.36 billion in total revenues.

For its part, IBM is being hit with a kind of triple witching effect. The System z mainframes are in the middle of their cycle, where Big Blue is not selling as many new machines and is instead selling more core activations on existing machines. The System x X86 server business is slowing as customers–mostly large enterprises who buy lots of gear from the company–evaluate their long-term plans in lieu of IBM’s decision to sell off this business to Lenovo Group for $2.3 billion. (That deal is still pending, but IBM has said it is on track to close by the end of this year.) And finally, the Power Systems business has been hit hard by a slowdown in China in recent quarters, by a general slowdown in Unix system sales, and by the transition to Power8 technology that was underway during the current quarter.

Add it all up, and it is not much of a surprise that IBM’s RISC/Unix business is down 21 percent to $663.3 million, or that its X86 server business is off 17.6 percent to $994.3 million. IBM’s overall server sales in the first quarter were down 25.6 percent to $2.24 billion, so the System z business must be down quite a bit for the numbers to work out.

Hewlett-Packard remained the top server vendor in terms of both shipments and revenues. The company’s revenues across all product lines were down 2.3 percent to $2.89 billion. Dell held onto its number three spot, with just a hair over $2 billion in sales, down 5.5 percent. Cisco Systems ranked fourth, with $616.6 billion in revenues in the quarter (up 37 percent), followed by Oracle, with $544.3 million in sales (up 1.1 percent). Several Chinese vendors, including Huawei Technologies and Inspur Electronics had phenomenal growth in shipments, and those two now rank among the top five in shipments, knocking off Oracle, Fujitsu, and Cisco.

“The first quarter of 2014 produced relatively weak growth on a global level with a variation in results by region,” explained Jeffrey Hewitt, research vice president at Gartner who does the server counting.” All regions showed a decline in either shipments or revenue except for Asia/Pacific. Asia/Pacific posted a 3.3 percent increase in revenue and an 18 percent increase in shipments. In Japan shipments increased by 13.5 percent, but revenue declined by 9.2 percent while in Western Europe shipments declined by 4.8 percent and revenues rose 6.7 percent.”