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Monday, June 12, 2017

IBM and HPE's Server Businesses Aren't Just Pressured By the Cloud Anymore

Following a long string of quarters in which the server sales of enterprise IT firms such as #IBM Corp. (IBM) , HP Enterprise Co. ( #HPE ) , #Lenovo and #Cisco Systems Inc. (CSCO) have felt the ill effects of public cloud infrastructure adoption, it's generally well-understood how the preference of companies likes #Amazon.com Inc. (AMZN) , #Alphabet Inc. (GOOGL) , #Facebook Inc. (FB) and (increasingly) #Microsoft Corp. (MSFT) to design their own servers and have them supplied by Asian contract manufacturers (ODMs) has become a headwind for the old guard. Especially as more and more business software workloads are either migrated to a public cloud, or built from the start to be run on one.

What might not be as well-appreciated yet, and which is driven home by some estimates and sales figures released this week, is how the IT giants are also now pressured by the aggressive efforts of one of their peers to take share. Namely, Dell Technologies Inc. (DVMT) , which is making full use of the expanded resources it has as its disposal after merging with storage giant EMC last year.

On Tuesday, June 6, IDC estimated global server revenue fell 4.6% annually in Q1 to $11.8 billion. The next day, Gartner estimated Q1 server sales fell 4.5% to $12.5 billion (a slightly different methodology appears to be responsible for a higher revenue estimate). Neither number was all that surprising, given the firms respectively estimated 4.6% and 1.9% declines for Q4.

It also wasn't too surprising that sales of servers designed by cloud giants and supplied by ODMs grew strongly following a Q4 lull, as the likes of Amazon and Facebook continued spending heavily on capex. IDC estimated sales of such servers, which it refers to as ODM Direct, grew 41.8% to $1.2 billion (10.4% of industry revenue). It added one unnamed cloud firm single-handedly accounted for over 10% of the 2.21 million servers shipped during the quarter.

What was, surprising, though is that both firms reported Dell, the world's second-biggest server vendor, saw meaningful sales growth in spite of the headwinds faced by peers. IDC estimated Dell's server sales grew 4.7% to $2.37 billion, leading its market share to rise to 20.1% from 18.3% a year ago. By contrast, the firm had estimated Dell's server sales were roughly flat in Q4. Gartner gave Dell a 19% Q1 share, up from 17.3%.

Dell confirmed its share gains on June 8 when the company reported its server and networking revenue grew 5% in the April quarter to $3.2 billion. The company added sales of its mainstay PowerEdge enterprise servers, which run on Intel Corp. (INTC) and (to a lesser degree) AMD Inc.'s (AMD) x86 CPUs, grew by double digits. That offset lower "high-volume cloud" server sales.

https://www.thestreet.com/story/14173273/2/ibm-and-hpe-s-server-businesses-aren-t-just-pressured-by-the-cloud-anymore.html

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