Maxed Out
Because the System i can run at redline speed all day long . . .
June 11, 2007
Doom, Gloom, and Better Numbers
In recent memory, IBM has reported declines in System i revenue on a quarterly basis. In last week's "Server Market Sees Modest Growth for 2006," we covered reports from IDC and Gartner that detailed server sales for 2006, reinforcing IBM's reports for Wall Street.
More recently, Gartner and IDC have both released research detailing the first quarter of 2007, and on the surface, not much has changed: IBM and HP each hold about 30 percent of the server market, with Dell and Sun battling it out for 10-12 percent.
The numbers ebb and flow, with IBM, HP, Dell, and Sun all taking market share from one another and with Linux, Windows, Blade, and Unix all tending to rise more often than fall. The System i, which is limited to the IBM playground, has tended to fall.
Gartner notes that 2005's hardware-based System i take was just over $2 billion in 2005, slipping to just under $1.8 billion in 2006. Unit volume, according to Gartner, also slid from 25,950 to 21,678. This last number isn't surprising at all considering the System i's increasing performance and virtualization capabilities.
IDC's Jean Bozman, a research vice president in IDC's enterprise server group, pegs 2006 closer to $1.6 billion for System i factory revenue. "This is for the hardware only — IBM also sells additional storage, software, and services to the System i customers, and so generates more than the $1.6 billion for the overall System i system solutions," Bozman notes.
Basically, she told me that IBM's System i is a foundation for a much larger business than the $1.6 billion would suggest.
Behind the Scenes
While not surprising, it's heartening news, of course, and a reminder that there are a lot of behind-the-scenes numbers that we are never privy to. The System i, while dropping in overall sales, may remain highly profitable for IBM.
In a briefing at COMMON with Mark Shearer, IBM's general manager for the System i, I asked him about the IBM quarterly reports to Wall Street. I can't imagine that those days are particularly sunny for Shearer.
While acknowledging that he would indeed like to report an increase in System i sales — who wouldn't? — he said that IBM views the System i market as part of a bigger whole. Basically, many of IBM's customers and nearly all of its very largest customers have System i solutions in place alongside other IBM solutions.
So it behooves IBM to take care of those customers. If they're happy, and one would assume profitable for IBM overall, IBM's broader view of customer service and profitability wouldn't necessitate freaking out over lost market share.
If the System i is profitable and if customer engagements are profitable, who cares if IBM ships 4,000 fewer boxes year-over-year?
That's a short-term view, of course, because volume is the nectar that feeds the System i ecosystem, and IBM is well aware of the value of the ecosystem. A case in point is the VIP program. This program came from a couple of successful IBMers who were kicking butt and taking names in the Unix world by displacing competitors with the System p. Do you think IBM could not have rolled out the VIP program with the System p or System x? It most definitely could have poured VIP effort into those platforms, but it instead chose System i. We don't know the numbers behind IBM's reasoning, but IBM chose to invest in the System i with the VIP program.
Don't forget the 3Com IP telephony deal. That's another major i-focused investment. Does anyone believe that IBM could not have created a specialized Linux appliance box that it could take to every single IBM customer? It would scale. It would be reliable. It would even be simpler to sell because IBM wouldn't ever have to educate a new customer about the System i.
But IBM chose the i.
I find that particularly compelling, and it points to a positive future. Maybe not this quarter, maybe not this fall, but soon, I believe, I'll be reporting better numbers.
Posted by cmaxcer at June 11, 2007 10:03 AM
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