ServersHappy Birthday, IBM: Big Blue Turns 100 in June

Happy Birthday, IBM: Big Blue Turns 100 in June

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IBM turned 100 years old this month, a rare feat in an industry riddled with one-decade wonders, such as DEC, Compaq, Atari, Wang, Gateway and Commodore. The company has had its ups and downs during that period, of course, but it has sustained a position of overall dominance that no one can rival.

IBM becomes a centenarian this month, a rare feat in an industry riddled with one-hit wonders and decade-old vendors that are considered venerable. How has this longstanding industry standard bearer kept pace with the times?

While some claim leadership in one facet of the industry — such as operating systems, business software, services, servers, storage, databases, middleware or business intelligence, Big Blue is an 800-pound gorilla in all of them.

But let’s focus on the server hardware marketplace — which is a mere drop in the bucket of IBM’s various revenue streams. The latest analyst numbers show IBM (NYSE: IBM) in second place in server revenue while leading in various categories. According to IDC, the company has almost 30 percent of the worldwide server hardware market, second only to HP.

“IBM held the number 2 spot with 29.2 percent share for the quarter as factory revenue increased 22.1 percent compared to 1Q10 and gained 2.4 points of share from a year ago,” said Matt Eastwood, an analyst at IDC. “IBM experienced significant improvement for its Power Systems, while demand for System z servers and x86-based System x servers also remained strong.”

HP has the volume numbers and it has an impressive range of server products
itself — ranging from low-end x86 boxes up to monster Superdomes — but it
doesn’t come close to IBM’s depth of server hardware.

Consider this: IBM doesn’t really play the commodity server game. It concedes all that territory to Dell and HP (to leave it with only a 16.4 percent revenue share of x86 sales). Yet it still owns nearly one-third of the overall server pie — thanks to its Power line (running the AIX flavor of UNIX and Linux) and, of course, its mainframe System z products. Analyst predictions to the contrary, the mainframe is far from dead. Under a virtual IBM monopoly, it is enjoying a new surge of life.

“Non-x86 based system revenue has grown faster than the market overall, driven by improved demand for Unix servers and IBM System z platforms,” said Eastwood. “IBM’s System z servers running z/OS experienced the third consecutive quarter of positive revenue growth, with 41.1 percent year-over-year growth in 1Q11 to $1.0 billion, representing 8.8 percent of quarterly server revenue worldwide.”

But this isn’t to say IBM isn’t a major force in x86. While it is third overall behind HP and Dell, it manages to hold a respectable second place with 20 percent of the blade server space. And in higher-end x86, it is one of the top dogs.

IDC places HP ahead overall, with 31.5 percent of worldwide server revenue compared to 29.2 percent for IBM. But Jeffrey Hewitt, an analyst at Gartner, called a much closer fight — 30.2 percent compared to 29.7 percent. In other words, it isn’t unreasonable to expect IBM to overtake HP despite not bothering about the volume end of the market.

You can see this most sharply in the Gartner unit shipment numbers for the
previous quarter. HP shipped close to 700,000 servers; Big Blue less than 275,000,
while generating only marginally lower revenue. Based on this data, you can
guess which company is the most profitable on the server side.

IBM Legacy

While IBM has broadened its portfolio far beyond the bounds of the tabulation machines with which it initially built its empire, hardware remains a central pillar. Wayne Kernochan, an analyst with Infostructure Associates, pointed out that IBM never abandoned its hardware legacy, despite the industry savants proclaiming the end of the hardware era.

“People had decided that hardware no longer ruled the computing world, as Harvard Business School proclaimed that computing companies must make their money in services or wither on the vine,” said Kernochan.

Conventional wisdom during the 1990s, then, was that the mainframe gravy train was over. Yet, IBM stayed the course.

“In the last five years, the IBM mainframe arm, once derided as a dinosaur, has become a new-technology dynamo with excellent cross-platform ideas such as zEnterprise,” said Kernochan. “Simply by outlasting and out-scaling competitors, as well as moving to Linux briskly, IBM has cut into the market share of vendors like HP and Sun in the mid-tier server space.”

Yes, IBM is even a leader in open-source Linux — quite an achievement for a stodgy old centenarian. Granted, the company lacks the coolness of young guns like Facebook and Google, but it managed to capture the popular imagination with its Watson supercomputer starring on “Jeopardy.”

“IBM’s brand is steadily improving, and it has walked the walk in hardware and software innovation,” said Kernochan.

Dan Olds of Gabriel Consulting Group pointed out another important factor: It’s not just the numbers of systems shipped by IBM, but what it is shipping and for what use.

“IBM tends to sell richer configurations and sells more entire solutions that are coupled with consulting, integration services, etc.,” said Olds. “That makes a difference in that they typically have much closer relationship with their clients than, say, a Dell or even HP in most cases.”

So happy 100th birthday, IBM. I wonder how many of today’s IT powerhouses — be it Microsoft, EMC, Oracle, Dell, HP, Apple, Google, Yahoo or Facebook — will even come close to matching that kind of longevity.

Drew Robb is a freelance writer specializing in technology and engineering. Currently living in California, he is originally from Scotland, where he received a degree in geology and geography from the University of Strathclyde. He is the author of Server Disk Management in a Windows Environment (CRC Press).

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