The Turning Point For Power Systems Is Here, And Now

July 28, 2025 Timothy Prickett Morgan

Considering how everyone in the IBM midrange systems market knew that Power11 processors and the next generation of Power Systems servers using them were coming some time around the middle of this year, the dip in Power Systems servers based on Power10 technology did pretty well, we think, in the first quarter and now the second quarter.

We have to infer this, of course, because Big Blue does not provide revenue figures for sales of Power Systems iron, much less give a breakdown by sales of machines running IBM i, AIX, or Linux as their primary operating system. What IBM does tell Wall Street – and therefore us – is how its overall Infrastructure group does in terms of sales of servers and storage across System z and Power iron and how much it makes on infrastructure support. And based on past trends and hints and a few guesstimates and hunches, we build a model of Power Systems sales, including servers sold externally to customers and business partners, PowerVS capacity revenue, and Power Systems servers sold as SAN and file system storage cluster head nodes.

In the quarter ended in June, IBM said that distributed infrastructure sales – which means all storage products – were down 15 percent as reported and down 17 percent at constant currency. System z mainframe sales were up 70 percent as reported and 67 percent at constant currency. Jim Kavanaugh, IBM’s chief financial officer, said on a call with Wall Street analysts going over the June quarter financial results that “storage was impacted by the new IBM Z cycle as clients prioritized hardware spend,” by which he seemed to mean they upgraded their mainframes but not their storage as yet. But Kavanaugh added that over each generation, customers spend X on MIPS capacity on mainframes and then spend 3X to 4X that on the rest of the hardware, software, and support contracts.

Given this System z spike but a delay in storage spending, we think the Storage was hit harder than the Power Systems within the distributed infrastructure line item, out model shows that Power Systems revenues from server shipments to customers and business partners as well as PowerVS capacity rentals accounted for $383 million in the second quarter of 2025, down 13 percent. We think Big Blue sold another $67 million in Power iron to the Storage division for use in DS and ESS series storage, actually up 20.8 percent year on year. That puts total Power Systems hardware revenues at $450 million, down 9.2 percent year on year.

Like we said, not too bad considering that in the past, when IBM was coming to the tail end of the Power7, Power8, and Power9 lines, sales were often down 20 percent or 25 percent in a few quarters, and sometimes even more. The time from the second quarter of 2012 through the first quarter of 2017, the declines were particularly bad during the last gasp of big RISC/Unix iron hegemony in the datacenter as X86 alternatives running Linux took over a lot of back office applications.

We estimate that Power Systems revenues were off 4 percent to $248 million in Q1, which was a much smaller amount of sales – typical of the Power line, as you can see in the chart above – but also a much smaller decline.

With the Power11 systems starting to ship on July 25, but the bang for the buck improvement not yet obvious for Power11 machines compared to their Power10 predecessors, it is difficult to predict how the Power11 systems will ramp. A lot depends on the readiness of customers to move to IBM i 7.6, which is required on all of the Power11 machines as far as we know. A typical Q3 is kinda weak normally, and a typical Q4 is strong as they have been for more than six decades because that’s when budgets have to be spent or lost. It will probably all balance out for flat to slightly up Power Systems revenues for all of 2025 as IBM clears Power10 gear out of the barn for those can only move to IBM i 7.4 or IBM i 7.5 at the same time as selling new Power11 iron to those who can upgrade to IBM i 7.6.

Time will tell.

In the meantime, in Q2 2025 IBM sold $2.85 billion in “hybrid infrastructure,” which is the broad term IBM uses for servers and storage, up 21.5 percent thanks to the System z17 upgrade cycle starting in April. IBM’s support business fell by a half point to $1.29 billion in the quarter, following its downward trend even after price increases. The Infrastructure group had $4.14 billion in sales, up 13.6 percent, with pretax income of $965 million, or 23.3 percent of sales, up 47.6 percent from the year ago period when Power11 and z17 developments weighed on profits.

We think that the overall systems business at IBM, which includes servers, storage, operating systems, networking, tech support, and financing as well as basic infrastructure software from Red Hat and now HashiCorp, is quite healthy, everything considered.

Our model of IBM’s “real” systems business, not including those Red Hat and HashiCorp contributions, shows that this business brought in $7.66 billion in the second quarter, up 9.2 percent, with pre-tax income of $4.27 billion, up 17.8 percent and representing 55.7 percent of revenues. If you add in a whole bunch of Red Hat Enterprise Linux, OpenShift, OpenStack, and Ansible tools and a tiny bit of Hashi Terraform, you get something close $2 billion in additional revenue and maybe another $210 million or so in additional pre-tax income. That is a $9.05 billion business that brings about half of that down to pre-tax profits.

This is not too shabby of a core systems business, all things considered. And native AI processing and models can probably double it if IBM plays its cards right.

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