The Tipping Point For Power9
December 4, 2017 Timothy Prickett Morgan
The server market is booming as 2017 comes to a close, and IBM is looking to try to catch the tailwind and lift its Power Systems business from the doldrums and get it rising again on the IBM i, AIX, and Linux fronts. The word on the street is that the first commercial Power9 machines, the ones aimed at HPC and AI workloads, will ship sometime before the end of the year, with a fairly quick ramp of Power9 systems for more generic workloads.
It can’t come a moment too soon, and while we wish IBM had started shipping Power9 gear this year, with memory prices as high as they are and so much uncertainty in the server processor space until the past few weeks, maybe it is for the best that Big Blue can take its time and ramp the systems using its “Nimbus” scale out and “Cumulus” scale up Power9 chips in the new year when everyone knows the competitive landscape. With IBM’s System z14 machines out and ramping, Big Blue can now concentrate on the Power9 ramp in earnest.
That certainly seems to be what has happened in the server market at large, if the latest financial figures coming out of IDC are any guide. In the third quarter ended in September, server sales hit a record-setting level, just a tiny bit under $17 billion, rising an eye-bugging, mind-boggling 19.9 percent compared to the year ago period. While enterprise server sales have been slumping for the past two years, the hyperscalers of the world – Google, Amazon, Microsoft, and Facebook in the United States, and Baidu, Alibaba, Tencent, and China Mobile in China – are spending like crazy, and that is helping pull up the entire market. We don’t know how many machines these companies have bought, or from whom, but the proxy sales of the combined original design manufacturers, or ODMs, rose by 45.3 percent to $4.12 billion in the quarter, comprising just a bit under a quarter of server sales. Of course, many of these companies buy iron from traditional OEMs or the ODM-like divisions of these traditional server suppliers, so the ODM figures from IDC don’t really show the full revenue stream due to these large organizations.
This is a significant, and probably irreversible, change in the IT sector. HPE and Dell are neck-and-neck jockeying for pole position in the server space, and for the moment, HPE (including its H3C partnership in China) has the lead with $3.32 billion in revenues, compared to Dell’s $3.07 billion, while Dell was the shipment leader, with 503,000 machines sold in Q3 2017 compared to HPE’s 501,400 machines shipped. IBM does not rank in the top five shippers – not even close with maybe somewhere between 8,000 and 10,000 machines shipped in the quarter at our guess – but thanks in part to System z mainframes and big Power8 boxes, IBM is still the number three server revenue generator, with $1.09 billion in sales, according to IDC, for the third quarter. The System z mainframe line accounted for $673 million of that, up 63.8 percent year-on year and we think dominated by new System z14 mainframe sales. If you do the math, then the Power Systems line accounted for $420.7 million in the period, down 7.2 percent from Q3 2016. This is not surprising, given that customers know that Power9 systems are coming.
To get Power Systems back to where it used to be – somewhere between $4 billion and $5 billion a year – IBM has to increase revenues by a factor of three or so. The good news is that, thanks to the popularity of hybrid CPU-GPU systems, which cost on the order of $65,000 per node from IBM, that it will take a lot fewer machines to rack up the dough, even if it is a relatively modest number of footprints and not a huge number of Power9 processors, either. More than 90 percent of the compute in these systems is comprised of GPU accelerators, and they make up a lot of the value. But it all will accrue to Power Systems when these machines are sold. IBM will be installing over 10,000 such nodes for the US Department of Energy’s “Summit” and “Sierra” supercomputers in the coming two quarters, so we should see a nice bump here soon. And as IBM gets the commercial Power9 systems into the field, sales will pick up again, too.
IBM could have a $4 billion to $5 billion business again, and with maybe a third the number of machines sold, with the same or higher profits. This, we think, must be the plan for phase one of the Power Systems revival. Then, it is to attack open source apps running on X86 iron on top of the Linux operating system, app by app, server by server.
At the moment, the X86 server market presents a huge target, the kind that IBM’s proprietary mainframe and midrange platforms represented two decades ago and that Intel brilliantly took on for hegemony in the datacenter. And won it through hard work and engineering. But Big Blue is no slouch, either, and it has good partners in the OpenPower Foundation that can deliver a credible alternative, with plenty of great engineering, to the Xeon platform. Even its latest “Skylake” Xeon SP implementation, which is a very expensive platform indeed.
Intel has left IBM a gap, and IBM has only a short time to exploit it. It will take a lot of hard work and a bit of luck to reverse those curves above on the X86 versus non-X86 server sales. In the third quarter, the gap got even larger even as non-X86 server sales managed to increase. In the third quarter, X86 server revenues were up 20.4 percent to $15.4 billion, while non-X86 servers rose by 15.1 percent to $1.5 billion. Various ARM chips – notably the ThunderX2 from Cavium and Centriq 2400 from Qualcomm – will also help boost those non-X86 numbers alongside the Power9 from IBM. And AMD’s Epyc X86 processors have a good chance of stealing some market share from the Intel Skylakes, too. We will be able to see more in the fourth quarter, and the situation will be even more clear as the first half of 2018 comes to a close and the Power9 machines are all in the field.
This is going to get interesting. Finally.