Excerpts from Confidential Client Edition
IBM CORPORATE / INDUSTRY TRENDS
Updated 2/25/05, 2:05PM MST (adds "IBM gains market share")
Annex Research’ IBM Business Segment Forecast 2005-2006
Servers to Grow Again
Linux, Recentralization and SMB Reintegration Trends – Main Demand Drivers
PHOENIX,
Feb 22 – Who would
have thought that a cute little penguin could end up doing what
multi-billion software giants have failed to – shake, rattle or break
some Windows; cause a Solar(is) eclipse or two; and stir up the pot in the
PC server business. In short,
Linux is creating new tectonic movements in the IT industry. A
fringe is becoming mainstream.
That’s been the trend with Linux ever since it acquired a (Big Blue) “sugar Daddy.” Together with Novell and Red Hat, among some ISVs (Independent Software Vendors), IBM is using it to help generate new demand for its servers. Its last week’s “Chiphopper” announcement is the latest (big) step in that direction.
[snip]
Chiphopper promises to rearrange the order of things in the IT server world. It will siphon off the opportunities from IBM rivals, and direct them into the Big Blue server pool.
“This differentiates us from Dell and HP,” Handy continued. “They are both focused just on x86. We’re focused on something much bigger. We’ve always thought that Linux is bigger than just an OS – (ours is) a multi-platform approach to Linux. We announced that when we announced the eServer lines.”
[snip]
IBM
Linux Already Gaining Market Share
Meanwhile, the Linux-driven server revenue growth continues to outpace that of the rest of the IT industry. And IBM servers are the key beneficiaries. IBM is already taking market share away from the giant Microsoft and some IBM competitors in the server business.
[snip]
Rattling
the Competition
Translating the software-speak into plain English, the Chiphopper may cause a (Sun Microsystems’) Solar(is) eclipse; rattle, shake or break some Windows, and in general stir up trouble among the IT server providers.
Sun Microsystems, Fujitsu, Dell and HP, for example, will have to figure out how to prevent IBM from using the Chiphopper to drain and siphoning off their opportunities. For, IBM has its big marketing guns aimed straight at them.
[snip]
Empire
(Microsoft) Strikes Back
No
wonder Microsoft is taking the Linux threat seriously.
In response, it is using typical marketing tactics of an incumbent.
When IBM mainframes were dominating the world of computing, we used
to call it FUD (spreading Fear, Uncertainty, Doubt).
If you click on the banner displayed at the Microsoft web site (below right), you’ll be able to see its “Get the Facts on Windows and Linux”-page. The page reads like that old library book - “An unbiased history of the American Civil war from a southern point of view.”
[snip]
IBM SMB Express
“For
the full year (2004), the SMB (small and medium size business) grew at a
lower rate than IBM as a whole (8% vs. 9%), giving rise to questions if
Big Blue’s SMB campaign may be running out of steam,” we wrote
in January. In other
words, 2004 was a year of tepid increase for what is supposed to be
IBM’s fastest growing market (see “Finally
Heard!”, Jan 2003).
Well, IBM seems bent on changing that again. The “SMB Express” series of announcements, also made last week, are focusing the company once again on this $13 billion market segment crucial for its future growth. More importantly, Big Blue is playing right into a global trend that we first identified just over a year ago in our latest “Holy Grail” search (see “IT Industry: Whither Goeth It?”, Jan 2004).
[snip]
Recentralization and Reintegration Trends
IBM servers are also getting a shot in the arm
from two customer-driven trends. One
is recentralization. Another
is reintegration. The
zSeries is the main beneficiary of the former trend.
The iSeries will profit from the latter.
What are these two trends about?
[snip]
IBM Revenue Forecast
Servers. Now, let us try to reduce all these new trends to an IBM revenue forecast. We expect the IBM overall server revenues to continue to grow in the 2005-2006 time frame...
[snip]
PCs & Technology. We made an assumption in our revenue forecast that the IBM PC/Lenovo deal would close in the second quarter, as planned. Therefore, we only included one quarter’s worth of PC revenue in our estimates.
[snip]
Software. IBM Software revenue will continue to grow in the next two years at an aggregate rate of...
[snip]
IBM Global Services. After years of being the fastest growing segment of Big Blue’s business, IGS is likely to become a drag on IBM’s growth this year and next. Unless, of course, John Joyce, IGS’s head, does something rather dramatic to turn things around.
[snip]
Overall IBM. Speaking of which, we expect IBM global revenues to decline to...
[snip]
Not much to write home about, but it will be a more profitable growth than it has been in the past (stand by for our annual IBM five-year forecast next month which includes the full P&L). And that’s goodness for IBM shareholders. Quality seems to be finally winning over quantity at IBM.
[snip]
PHOENIX, Feb 25 - As expected, IBM servers continued to gain market share in the fourth quarter of 2004, according to the just-released data by IDC. IBM extended its lead with 38% market share of revenue, up 6.5% year over year.
For the full year 2004, IBM's share of global server revenues was up by 1.2%. The only other vendor to have gained share in 2004 was Dell, with a 0.4% increase. Sun Microsystems was the biggest loser with a 1.1% decline in its market share.
For the full year, IBM's share of the global server market was 33%, followed by HP's 27% and Sun's 11%, according to IDC.
Linux and Windows servers showed the fastest growth last year, increasing by 36% and 16% respectively. HP led the Linux market with a 26% market share, followed by IBM (24%) and Dell (26%).
PHOENIX,
Feb 25
- Big Blue's iSeries servers got another marketing boost today when IBM
announced that it would significantly increase its investments to engage
nearly 10 times as many partners developing software applications for the
iSeries platform (also see IBM SMB Express
above).
"We wanted to smash the barriers that stand in our partners' way and accelerate their ability to deliver critical innovation," said Mark Shearer, general manager, IBM iSeries, in a release. "By expanding our support from hundreds to thousands of iSeries partners, IBM expects to open up a floodgate of innovation from third-party software vendors and developers who are eager to create on demand applications for the rapidly growing small and medium business market."
As you saw in our earlier (Feb 22) report, we expected the iSeries revenues to grow this year and next. The ISV programs, such as the one announced today by IBM, are one reason why the iSeries recovery is likely to gather steam in 2005.
[snip]
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Bob Djurdjevic
For additional Annex Research reports, check out... 2005
IT: CSC:
Gearing Down on Purpose (Feb 2005); EDS:
Grossly Overpriced Stock (Feb 2005); IBM
Historical Update: 2004 Shot in the Arm (Feb 2005);
New
HeadTurners Series #1 (Feb 2005);
IBM:
A Crescendo Finale! (Jan 2005); Accenture:
Strong Finish, Better Start (Jan 2005); Annex
Coverage 2004: IT Services Dominate (Jan 2005); 2004
IT: EDS:
The Titanium Stock (and other Wall Street tales)
(Dec 2004); IBM
PC: Good Riddance (Dec 2004); Fujitsu:
Recovery Continues (Nov 2004); IBM
Server Renaissance (Nov 2004); HP
Hits Home Run (Nov 2004); Capgemini:
Revenue, Stock Soars (Nov 2004);
EDS:
Jordan's Swan Song? (Nov 2004);
To Russia with Love
and $ (Oct 2004);
IBM: Slow
Quarter No Longer (Oct 2004); Accenture:
Revenues, Profits Up, Stock Down (Oct 2004);
Capgemini:
A Takeover Target? (Oct 2004); Sellout
of America (Oct 2004); Spy
Wars (Sep 2004);
Outsourcing
Boomerang (Sep 2004);
EDS
to Cut Up to 20,000 More Jobs (Sep 2004); Capgemini
Stock Plummets on Unexpected Loss (Sep
2004); HP
Savaged by Wall Street (Aug 2004); Moody's
Lowers the Boon on EDS (July 2004); HP:
Delivering Value Horizontally (June 2004); Accenture:
Revving Up a Notch (June 2004); Beware
Your CFO! (May 2004); IBM:
Changing of the Guard (May 2004); Capgemini:
Texas-size Home Run (May 2004); Following
the Money (May 2004); EDS:
On a Wink and a Prayer (Apr 2004); HPS
Wins by a Nose! (Octathlon 2004); Accenture:
Burning the Track (Mar 2004); IGS:
"Crown Jewel" Restored? (Mar 2004); HP:
Still No Cigar (Feb 2004);
Cap Gemini: Another, Smaller Loss
(Feb 2004); CSC: Good Quarter Gets Boos (Feb
2004); EDS:
"Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT
Industry: Whither Goeth It? (Jan 2004); Cronyism
Is Alive and Well at EDS" (Jan 2004) Or just click on Volume XXI, Annex Bulletin 2005-05 Bob Djurdjevic, Editor 4440 E Camelback Rd #29, Phoenix, Arizona 85018 The copyright-protected information contained in the ANNEX BULLETINS
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February 22, 2005
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