IBM Not Giving Up on Power Servers

The global server market is anything but consistent as demand rises and falls each quarter. The constant over the last year, though, is IBM Corp.’s steady decline in revenue and unit shipments as its customers defect to rivals with comparable equipment at lower prices.

Big Blue isn’t accepting this erosion easily. Last week, it introduced the Power Express 710, a low-cost server in its Power Systems product family that starts at $5,947 and is intended to challenge lower-end Oracle Corp.’s Sparc and Hewlett-Packard Co.’s Integrity servers.

“With these new systems, IBM is forging an aggressive expansion of its Power and Storage Systems business into SMB and growth markets,” said Rod Adkins, IBM’s senior vice president of the Systems & Technology Group.

Despite its troubles in servers, IBM remains the top vendor in terms of generating revenue. According to Gartner, IBM’s third quarter global server revenue was $3.48 billion, or 27.6 percent market share. IBM beat HP ($3.3 billion), Dell Inc. ($2.1 billion) and Oracle ($592 million). Yet, IBM’s gross server revenues declined by 9.5 percent; it was the third consecutive quarter of revenue declines, with IBM’s server revenue fell 7.2 percent in the second quarter and 5.1 percent in the first quarter.

IBM is steadily declining in server unit shipments, too. Over the same three quarters, IBM’s shipments declined 2.5, 1.7 and 16.7 percent, respectively.

Meanwhile, the server news isn’t good for rivals, either. HP and Oracle have posted steady declines in server revenues and shipments over the first three quarters of 2012.

Oracle continues to battle with market perceptions, integration issues and channel conflict related to Sparc, the high-performance server line it acquired from Sun Microsystems in 2009. In the third quarter alone, Oracle saw server revenues plummet 22.5 percent; the company didn’t make the top 5 vendors in market share for the same period.

HP’s server revenues plunged 12.4 percent and shipments dropped 8.4 percent in the third quarter.  Sales of Integrity and other Business Critical Server products, built on the Intel Corp.’s Itanium chip, suffered during the protracted lawsuit between HP and Oracle over the future of the architecture. HP ultimately won the Itanium lawsuit, extracting as much as $4 billion in court-ordered awards. However, HP said sales of BCS products were off by 30 percent compared to before the lawsuit.

Only Dell, which deals mostly in commodity servers, saw appreciable revenue and market share gains in 2012 among the top 5 server vendors.

Analysts agree that IBM’s introduction of the Power Express 710 is more defensive than offensive, signalling IBM intends to compete against long-time rivals and upstarts and keep customers from switching to alternatives.

While analysts believe IBM is aiming at HP and Oracle with the launch, it might be defensive to others, as well. Lenovo, EMC Corp. and Fujitsu Ltd. are moving up the server market. In the wings are companies such as Huawei Technologies Co., which may market servers more broadly.