Cognitive Systems Hardware Business Gets A Boost

March 5, 2018 Timothy Prickett Morgan

As 2017 came to an end, X86 server shipments and revenues surged, and IBM’s System z14 mainframes came to market and Big Blue got a much-needed injection of revenues and profits in its Cognitive Systems hardware business.

While IBM did start shipping some initial Power9 iron as the year came to an end, shipments are not going to start in earnest until March, when the “ZZ” entry Power Systems machines announced in February start shipping. In the quarter, and more or less consistent with what IBM said recently in its own financial reports, IDC believes that Big Blue had $2.69 billion in revenues for its systems business, which in the IDC way of counting things is revenue from base machines with base operating systems included. That was 50.3 percent growth year on year, and made IBM the world’s third largest revenue generator when it comes to servers. IBM did not, however, make the top five shipper rankings at IDC, and that is because Hewlett Packard Enterprise, Dell, Lenovo, Huawei Technologies, Supermicro, Inspur, Cisco Systems and probably a few other vendors push a lot more machines than IBM. They make the tin up in volume, and IBM makes the money up in volume.

The good news is that just as the Power9 entry machines are coming into the market, companies are spending a lot of dough buying infrastructure. It would have been better, as we have pointed out, had IBM started shipping Power9 machinery last summer so it could have ridden up the best quarter in the history of systems. While the first quarter will be soft by comparison, the economies in North America, Europe, and Asia, where the company makes most of its Power Systems sales, are humming along even with the stock markets and the politics being a little jittery. So it is up to IBM to take advantage of the good times and capitalize with some Power Systems growth.

While the fourth quarter was a good one for just about all server makers, given how cloud builders and hyperscalers are dominating server revenues and shipments – they probably represent somewhere around 35 percent to 40 percent of shipments, and a smaller portion of revenues – the market can swing a lot up and down depending on where the Big 8 are spending, or not spending. (That’s Google, Facebook, Amazon, Microsoft, Alibaba, Baidu, Tencent, and China Mobile.) While IBM wants to have hyperscalers adopt Power9 machinery, it is long overdue for an upgrade cycle in its AIX and IBM i businesses, and they might help boost IBM’s systems business in the second quarter, when shipments are really ramping. So expect a weak first quarter, and then things will get better – and we would reckon against an easy compare.

In the quarter, server revenues worldwide were up an amazing 26.4 percent, to $20.65 billion, and shipments were up 10.8 percent to 2.84 million machines. Revenues grew faster than shipments in part because of the System z spike, but also because companies are buying heavier configurations to run HPC and AI workloads, sometimes with very expensive GPU accelerators.

With every quarter having its ups and downs with the hyperscalers and cloud builders, and enterprise server spending on a general downward trend, but sometimes surprising as in the final quarter of last year, it is hard to predict any quarterly sales for servers. But there are general trends that are revealed when looking at vendor sales on an annual basis. Here is a table that shows the last three years of server revenues, by vendor:

What seems clear from this table is that Lenovo has not benefitted from the X86 server boom as much as Dell and the group of original design manufacturers who tend to sell to hyperscalers and cloud builders. Hewlett Packard Enterprise is declining over those years, too, and Cisco Systems is basically treading water. Other vendors, who are innovating and fighting hard for business, are showing some growth.

There is room for alternatives, and companies want them. So there is hope for the Power9 refresh. It all depends on how Big Blue executes.

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