Feeds

back to article Lenovo deal to buy IBM x86 server biz moving along fast

It is becoming increasingly clear that IBM CEO Ginni Rometty is annoyed with the performance of the company's systems business. Annoyed enough to spin off all or part of its System x server business to China's Lenovo Group, according to rumors that surfaced last week. The US channel trade rag CRN broke the story of an impending …

COMMENTS

This topic is closed for new posts.

Sales margins are KEY at IBM...

IBM really doesn't want to be in low-margin businesses. Margins have dropped significantly on desktop PC several years ago. The ascendency of non-PC desktop devices and the 'levelness' of the product field probably did most of that.

Now the margins are being drained out of the servers. IBM doesn't have a high-margin blade product profile. It isn't surprising to see them exit from the low-margin part of this field.

Just like UNISYS has with its Clearpath Intel Super-Boxes (with help from Dell), IBM will find SOME KIND of ongoing exploitation of Intel Architecture. They will do it on a lesser-volume, higher-margin basis.

0
0
Anonymous Coward

Overstated

"With System and Technology Group, which makes IBM's chips, systems, and storage, seeing a 17 per cent drop in the most recent quarter (to $3.11bn and an operating loss of $405m which means the actual loss was much bigger after overhead was heaped on)"

That is only an accounting categorization. It doesn't mean that IBM lost money by being in the systems business last quarter. IBM takes the software/services which are a part of systems and accounts them as either software or services revenue. For instance, AIX, z/OS, IBM i is accounted as Software Group revenue, but obviously would not exist without the systems products. Likewise with all of the Power and z platform software, CICS, VSAM, MQ, IMS, DB2 for z/i, OS utilities, etc. Services on systems, such as a maintenance contract on a Power server, falls under GTS within Global Services. If you combined all of the software and services which are inherently connected to the systems as part of STG, it would be profitable. It also doesn't include financing for the systems, which is also a separate category.... It is like saying that Gillette is bleeding money in the shaving market by only looking at the P&L for the razor without including the high margin blades... or HP is losing money in the printing market by looking at the P&L for the printer hardware while considering the high margin ink as a completely unrelated business.

"an operating loss of $405m which means the actual loss was much bigger after overhead was heaped on)"

I'm not sure you're right about the overhead. The IBM quarterly statement has the "pre-tax loss" at $0.3 billion, which would mean overhead, aside from taxes, is included.

4
1
Bronze badge
Happy

Re: Overstated

IMHO - good analysis.

Also I haven't looked, but I guess these numbers are before EBITDA and so could miss some important 'adjustments'

0
0
Anonymous Coward

"7 per cent mainframe sales slip in the first quarter "

Not correct, mainframe was up 7%, not down 7%.

1
0
Silver badge
Facepalm

Oops!

Gee, it must have been accidental, but all the IBM fanbois seem to have forgotten to mention that exiting the desktop and now the x64 server biz means IBM just lost a lot of purchasing power in the components markets.

1
1
Anonymous Coward

Re: Oops!

"purchasing power in the components markets."

Everyone gets, more or less, the same pricing from the common component suppliers. These are highly regulated markets because they involve dominant market share suppliers, such as Intel and Microsoft, and the component suppliers can't limit competition by agreeing to provide one provider with the best pricing. Also, it is not in the component suppliers interest to do so. If Intel, for instance, gives HP the best pricing all the time because they buy more of their chips than IBM, Oracle, Cisco, etc, that will force the other OEMs to look elsewhere and do their own thing. Intel doesn't care at all which OEM people use, they want to make it beneficial for all OEMs to stay in Intel's court. They also don't want any OEM to have any power over them at all and want to keep as many OEMs out there using Intel as possible. If Intel could have four or five providers with the same market shares, that would be ideal. That way if one of their OEMs starts screwing up in other areas of their business or producing shoddy quality products, people can always move to the next OEM... which is equally as good from their perspective. More OEMs limits their risk and increases their control.

1
2
Silver badge
FAIL

Re: AC Re: Oops!

".....Intel....." Yeah, way to pretend Intel not only make every component in the systems, but that every other component has just one dominant supplier. Fail!

1
1
Anonymous Coward

Re: Oops!

Err... Why would IBM want to keep purchasing power at the cost of selling low margin items which will actually probably come in at a loss? The only significant company that desktops are not core product of left is HP and they do a lot of selling to individuals, IBM never did.

1
2
Silver badge
FAIL

Re: Oops!

".....desktops....." We are talking x86 SERVERS, not desktops! Do try and keep up. Let's consider what happens when hp (or Fujitsu or even Oracle) go to an interface card vendor like LSI or Brocade and say "we want to buy a bulk order of your cards, what discount can you give us?" Now, in hp's case, they are ordering for their Itanium servers as well as their x86 servers, so they are ordering an order of twenty times as many as IBM will be who will be ordering for just their Power servers (their blades and Flex offerings will not take standard PCIe cards). Now, who do you think LSI or Brocade will give the better discount too (which allows hp to price their servers lower or make more margin)? And then consider which company LSI or Brocade will listen to more when they ask for new product features or for drivers. Here's a clue - it ain't gonna be IBM.

1
1
Anonymous Coward

Re: Oops!

Remove the word desktop, replace with the word server. Try not to be a patronising arse.

0
2
Silver badge
Facepalm

Re: Re: Oops!

"Remove the word desktop, replace with the word server. Try not to be a patronising arse." Hey, it was your fellow Big Blue troll that used the word, why should I apologise for his stupidity? I see you also fail to answer the rest of the post, can we assume that means you agree? LOL!

1
2
Holmes

Intel needs any $

> just lost a lot of purchasing power in the components markets

I think Intel needs ever $ they can get. IBM will still buy a lot of Intel processors for Blades, Flex, storage systems.

0
0
Sil

Hardware is the best Trojan for servives

Hardware is still the best Trojan for services and visibility. If IBM sells its server business I guess soon nobody under 30 will will know who it is. And why trust a company for IT integration & architecture when it has been disintegrating for the last 20 years and architecture-free? This time around no Linux will save it and mainframe revenues will not last forever and IBM is a cloud nobody.

2
2
Bronze badge
Unhappy

Re: Hardware is the best Trojan for servives

IMHO - I disagree. Plenty of massive service revenues around the world come from companies that have no hardware involvement at all.

I work for one of them, and we will not touch hardware even if the customer promises me dancing girls and white powder.

A customer spends upwards of a million on services is totally agnostic on hardware origins.

4
2
Silver badge
Facepalm

Re: Getriebe Re: Hardware is the best Trojan for servives

".....upwards of a million on services....." Ooh, a couple of million, that should make up for losing billions of hardware revenues.

0
2
Bronze badge
Stop

Re: Getriebe Hardware is the best Trojan for servives

Well I can tell you are a backroom man, the ways:

My example was of a class of customer, not their total, so multiply up, a lot

And what we want to know is the profit not the revenue. Way more profit and importantly recuring profit from services over one shot consumer hardware.

They are sticking with AIX and POWERx processor stuff where there is much more money to be made.

2
2
Silver badge
Facepalm

Re: Getriebe Re: Getriebe Hardware is the best Trojan for servives

".....And what we want to know is the profit not the revenue. Way more profit and importantly recuring profit from services over one shot consumer hardware....." Ah, the usual "services ftw" schpiel. Sure, services can makeup large margin on a deal, but their are three main problems with vendors doing services:

1) You have to keep paying for all those expensive consultants even when they aren't busy.

2) You are taking business away from your channel - all the VARs want to sell services, so if you steal their dinners they will lead with another vendor they consider more channel-friendly.

3) You are in competition with truly independent consultancy outfits, whereas as IBM are tied to their own kit. No-one is going to ask Oracle to install SAP and no-one will ask IBM to install non-IBM products (not if they have a clue, anyway). It's rather hard to be taken seriously as having in-depth knowledge of another company's product when your salesgrunts have been in their telling the customer how crap it is and how much better IBM's offering is.

There's also the small matter of IBM having excluded itself from a whole load of services opportunities by ditching their x64 server biz. Whilst hp, Fujitsu and Dell will be in those opportunities and can pitch their services as part of the hardware deal, IBM won't even know about it. And with AIX also in decline (the whole UNIX market is), IBM Global Screwups will really miss all those x64 deals.

1
2
Silver badge
Facepalm

Re: Getriebe Getriebe Hardware is the best Trojan for servives

> Whilst hp, Fujitsu and Dell will be in those opportunities and can pitch their services as part of the hardware deal

A clown company in a death spiral and two hardware manufs in unrude health? Yeah that's the ticket. Services offer, sure.

1
2
Anonymous Coward

Re: Getriebe Getriebe Hardware is the best Trojan for servives

"Whilst hp, Fujitsu and Dell will be in those opportunities and can pitch their services as part of the hardware deal, IBM won't even know about it. And with AIX also in decline (the whole UNIX market is), IBM Global Screwups will really miss all those x64 deals."

There is no benefit to being an x86 provider in a major services project, it is usually a disadvantage. You might hear that a company is implementing SAP, but few want to work with a commodity hardware provider on business process redesign. Totally different businesses. Tactical supplier vs. strategic partner to use the consulting terminology. Besides, didn't you just mention that the x86 providers are giving the services opportunities to their VARs anyway in the previous point?

1
1
Silver badge
Happy

Re: Destroyed All Braincells Re: Getriebe Getriebe Hardware is the best Trojan for servives

".....A clown company in a death spiral and two hardware manufs in unrude health?....." All three seem to be doing better in x86 than IBM.

1
2
Silver badge
FAIL

Re: AC Re: Getriebe Getriebe Hardware is the best Trojan for servives

".....There is no benefit to being an x86 provider in a major services project....." There is because as an x86 vendor you will be AWARE of the opportunity and be involved in it as you are tendering the hardware, whereas IBM will not be. Really, do try and deny reality if you must, just don't be so stupid as to try and air your denial here.

".....You might hear that a company is implementing SAP, but few want to work with a commodity hardware provider on business process redesign....." Really? Says who, your rectum? According to SAP - you know, that whole big, business process software stuff - hp is their biggest partner, so your rectum is obviously wrong.

".....Besides, didn't you just mention that the x86 providers are giving the services opportunities to their VARs anyway....."" Yes I did, which is why the VAR will push hp or Fujitsu or even Dell instead, because they know the vendor's hardware will get them into the tender, and then the vendor will back them up and fill in the gaps on the consulting, unlike IBM who will not be able to supply the hardware and then try and cut the VAR out of the services deal.

I have direct experience of seeing IBM Global Screwups trying to provides consulting services around non-IBM kit and it was a mess, despite their promises that they knew everything about it. The cherry on top was when they had to go to a VAR to get resource without telling us, I only spotted it when I saw the VAR's company name on the security access request, and that was doubly wrong as anyone working on our kit was supposed to be screened in advance! They had to go to a VAR as they didn't have the basic in-house resource required, which they had assured us at tender time was "100% covered", at which point our CIO finally binned his Big Blue blinkers and took the contract away from Global Screwups.

0
3

This post has been deleted by its author

Anonymous Coward

Re: AC Getriebe Getriebe Hardware is the best Trojan for servives

"There is because as an x86 vendor you will be AWARE of the opportunity and be involved in it as you are tendering the hardware, whereas IBM will not be."

There is a big difference between being aware and being favored as a result of selling commodity electronics to the infrastructure team. If that were the case, Accenture, Deloitte, CapGem, CSC, etc would always be on the outside looking in, which they are not. These are two different businesses. Different buyers, different requirements, different skill sets. Not to mention, I don't think x86 server providers are aware of those projects before hand. It is not like any company asks their x86 server provider their opinion on which ERP they should implement or how to restructure their financial modeling operations. The consultancy works with the executives on the project.... months later they issue an RFP for some hardware to support it.

" According to SAP - you know, that whole big, business process software stuff - hp is their biggest partner, so your rectum is obviously wrong."

IBM is SAP's largest partner by a wide margin in services and across the board. They are an order of magnitude larger than HP. SAP was actually an IBM spin-off. Read Hasso Plattner's bio.

IBM is SAP's largest implementation partner. DB2 is their preferred DB which SAP dev teams work on with IBM. SAP is tightly integrated with WebSphere... to compete with Oracle. IBM systems, Power and z, run most of the largest SAP shops in the world. IBM has more SAP skilled employees than any company except for SAP themselves. IBM System x is even preferred by SAP for HANA, they use IBM for their own HANA implementation and managed HANA services.... I think the HP number you are referencing is the "joint customer" number. I am sure most SAP shops have HP printers or HP PCs or HP somewhere in their operations, but that doesn't mean that makes them more knowledgeable about SAP applications or providing unique technical advantages for SAP. HP just happens to be a hardware supplier in the account. HP also says they are Oracle's largest partner because 140,000, or whatever the number is, accounts that run Oracle applications also have some HP hardware somewhere, but HP and Oracle are hardly close partners.

"I have direct experience of seeing IBM Global Screwups trying to provides consulting services around non-IBM kit and it was a mess"

You seem to think IBM GS is a big player in hardware installation and integration. They rarely even touch the hardware.

1
2
Silver badge
FAIL

Re: AC Re: AC Getriebe Getriebe Hardware is the best Trojan for servives

"....There is a big difference between being aware and being favored as a result of selling commodity electronics to the infrastructure team. If that were the case, Accenture, Deloitte, CapGem, CSC, etc would always be on the outside looking in, which they are not....." OK, when I stop laughing, let's just assume your argument holds water, then let's take it a step further - if IBM are not doing the hardware then what do they offer over Accenture, Deloitte, CapGem, CSC (all of which have VAR arms, by the way, and are therefore more likely to go with the hardware vendor recommendation)? The answer is nothing. In fact, it is WORSE than nothing as IBM come hamstrung with Global Screwups and their total focus on IBM products.

".... It is not like any company asks their x86 server provider their opinion on which ERP they should implement...." Which begs the question of how IBM will magically insert themselves into an account when they have neutered themselves out by removing the majority of hardware in question? If I am going to consider a business process software change, my first two options are pretty much SAP or Oracle, so why would I even think to ask IBM? Then, having selected my software, and having realised I don't need big UNIX boxes, why do I need to talk to IBM? IBM are NEVER in the conversation, so they also miss out on all the added deals such as storage, hosting, management/monitoring software, etc.

".....IBM is SAP's largest implementation partner....." Wrong. Accenture is SAP's largest pure implementation partner, but hp dwarfs both when you consider hardware as well as implementation, especially as SAP admit more SAP implementations go on hp servers than any other vendor's. if you ask Accenture (and I have, thanks) the majority of their implementations are on hp kit and they prefer working with hp because hp do not try and force software choices on them like IBM do (such as trying to insist on DB2 instead of Oracle or MS SQL). With IBM ditching their x86 servers I expect even more SAP deals to go in on hp servers. It's childishly naive of you to pretend otherwise.

1
3
Anonymous Coward

One thing missing

is an analysis of how many people are likely to lose their jobs because of this.

Lenovo is a company where they replace internal accounting software instead using a Chinese person with a spreadsheet. If it becomes too much data for a Chinese person with a spreadsheet, they just hire an extra Chinese person.

This move, should it happen, will rob hundreds if not thousands of people of their livelihoods, in parts of the world where jobs aren't easy to come by at this time.

Thomas Watson Sr. can now probably be used to cool a Power PC CPU, with the amount of rotating he's doing...

0
0
Silver badge

Implying livelihood can be "robbed"

And stop phoning it in from the UAW.

Seeing how they will need at least 3000 chinese people to do the spreadsheeting I don't see how thousands will be "robbed of their livelihoods".

0
0
Holmes

Operating

It's easy to achieve "at least $20 in operating earnings per share" if you control the number of shares. Just buy back enough of them, job done.

Can we have a substantive and meaningful goal please?

0
0
This topic is closed for new posts.