With the tremendous noise of chickens coming home to roost, IBM's first quarter storage revenues carried on crashing down with depressed revenues. We covered IBM's overall results here and pointed out that IBM's poor hardware product-based revenues were dragging the overall results down. Within that segment, storage results were …
"We wouldn't really class IBM as a leader in storage, not with its history of declining revenues."
They are still the second largest storage provider in the world, or third (depending upon the NTAP vs IBM revenues for the quarter). Also, they invented most of the storage industry, like disk drives and tape formats, etc. Not to say things are going swimmingly, but they are still among the leaders... unless you consider EMC to be the only leader in storage.
If you look at the portfolio, they are a leader in Flash, one of the top three players (with EMC and HDS) in the declining high end disk market, the leader in tape, have a solid mid-range product, they have a solid dedupe/VTL product (not that anyone knows it). The only gap in the portfolio, and it is a major gap, is NAS.
I doubt IBM is going to sell off storage. They make a lot of cash at the margins in the storage market, i.e. Tivoli, and it is still a higher margin, growing area. The big problem IBM has is that they used to be basically a high end storage player (just DS8). They OEMed, from LSI, mid-range which was lack-luster and are slowly re-creating that market share with V7000. People are buying less high end storage than they used to, be it DS8, VMAX or VSP. This hurts IBM more than it hurts EMC because EMC can fall back on a large mid-range business, a growing Isilon filer business and Data Domain. What IBM really needs to do is create a great scale-out NAS platform with GPFS. That is where EMC is growing and obviously NAS is NetApp's business. IBM doesn't really play in any major way in that huge market. If you don't have a NAS business and you are in storage, it isn't going to look great because people are paying far less per TB for block storage than they were a few years ago. You need the ever expanding NAS market to off-set the price declines in FC disk.
IBM probably has more TBs under management than they did a few years ago, but, if you are replacing DS8s with XIV or V7000, you need to sell twice as many of them to get back to square one.
IBM GS have always been their own best Customer, a huge chunk of sales have always been IBM buying from IBM and not due to product excellence.
Am I the only one finding the chart a bit strange? Would it not have been better to show each quarter on the X axis? Is this a new accounting trend in charting?
Relative profits, not gross sales
I think the article is misguided and uninformative. The real concern is relative profitability, not the raw sales data. Having said that, I haven't seen any data to indicate the storage business is outstandingly profitable.
Hi Chris, I have mentioned this a few times, but it is worth repeating. In the IDC charts they show both revenue share and capacity share quarterly and annually. There is no question that IBM is losing revenue share, but in calendar year 2013 they actually gained capacity share according the IDC, so again the devil is in the details and it would be if both sides of the story were told.
The question really becomes what is more important, how much revenue share a vendor has or how much capacity share they have. If you are an investor, revenue share (and profit share) is most important, but if you are a customer, as long as the vendor is financially viable, do you care that they made less money on the capacity they sold you? Probably not. If I were a customer I would see capacity share increases along with revenue share decreases as a bonus because you are getting the same product at a lower price. An alternative question would be if a company is gaining capacity share even if they are losing revenue share are they still not selling more storage?
One of the most dramatic examples of this is EMC compared to NetApp. While EMC was #1 with 34% or $7.2B in sales and NetApp #2 with 15% or $3.2B in sales revenue share in 2013. EMC was #1 with 28% capacity with 6.2PB share compared to #2 NetApp's 20.3% with 4.5PB. Net is EMC customers paid an average of $1,161/TB and NetApp customers paid $710/TB. From the previous year although EMC gained 0.7% revenue share, they actually lost 0.3% capacity share while NetApp gained 0.6% revenue share and also gained 0.3% capacity share a net gain of 0.6% capacity share even though EMC charged their customers more.
In IBM’s case, their revenue went down, but capacity shipped went up showing that they are actually selling MORE storage, but their customers are just paying less for it or have shifted to some of IBM’s less expensive products, probably both. For 2013 IBM $2.3B for 11.1% of revenue share and 2.5PB for 11.5% of capacity share at an average of $920/TB almost exactly between EMC and NetApp.
Form a customer’s perspective again what tier one vendor do you want to buy from? The one that whose acquisition cost/TB are going up like EMC or down like NetApp and IBM?
As a piece of trivia, IBM invented the HDD in 1956, doesn't seem like hard drives have been around almost 60 years.
The problem when working with raw capacity shipped is that it only tells a bit of the story; you would need to know what the capacity breakdown is before working out what customers are paying per terabyte. If EMC and IBM are still focusing very much on the high-end as opposed to the mid-ground that NetApp currently tend to operate in; for example EMC, IBM and HDS can sell storage into mainframe outfits, NetApp can't...this is going to skew their price per terabyte downwards.
If the various vendors were to start splitting out revenues and shipped capacity by product line; you could draw more conclusions. For example, what has the impact of the Engenio aquisition had on NetApp's capacity shipped? It's given them a whole load of partners that they didn't have before and has increased their channels to market.
Perhaps vendors should start to detail capacity and IOPs shipped...but that'd only be of real interest to the storage geeks.
I actually think IBM have some very good storage products; the Storwize products are very good, extremely good value and the low-end V3700 is so much better than the old OEMed LSI/Engenio products. If Lenovo do take the IBM storage products; the Storwize products could/should do very well. I think XIV has driven into a cul-de-sac architecturally; spindle-sizes have not done it any favours and the current product's inability to increase spindle-counts which is imperative to keep rebuild times down is a real problem long-term.
The DS8K is going to keep trundling along for as long as IBM sell mainframes....which is unfortunate really, it's the zombie product which needs getting rid of.
IBM is exiting hardware biz
The trend has been clear for quite some time. IBM is slowly but surely exiting all hardware biz. Not much hardware is left as IBM is transitioning to a consulting and services company, competing with Accenture etc. The margins are higher than in hardware, which is why IBM sold off the x86 biz. That was huge, as it was IBM who started the whole x86 industry. And now the creator has exited, because of diminishing returns. IBM has no sentimental why on business which explains why POWER is next in line to die. POWER8 will not be faster than high end x86 but much more expensive, so POWER will turn to low margin. That is the reason IBM has no POWER roadmap which is a very bad sign for the POWER customers, they can not plan ahead. Surprisingly Mainframes are still alive but the trend is declining as well. No new Mainframe customers, only old customers are upgrading, or slowly migrating away from the relics. There is no new customer that will build their new business around expensive Mainframes, they prefer Linux and fast x86 servers instead. There will be a time when the last few customers can not bear the cost of Mainframe R&D any longer, just like Itanium. But that will take another decade at least.
Re: IBM is exiting hardware biz
I don't think IBM needs to be just one thing, e.g. a services company, anymore than GE needs to be just a light-bulb company. They will likely be a large software, systems and services company. If it was about margins, software has far higher margins than services.
The interesting thing about Power is that IBM just opened up the chip set, similar to ARM. Google and company are part of that coalition. There is nothing technically superior about x86, it is just ubiquitous and inexpensive. If IBM is willing to let low cost fabs produce Power for any purpose, it is entirely possible that it could become less costly than x86. If Power is less costly than x86, people would rather have Power... especially people like Google and Amazon who know what they are doing instead of just buying Windows servers. The real reason that x86 became dominant was not due to any technical merit, but because they were the only chip set supported by Microsoft and Microsoft was the giant in the industry. The cloud providers, who will likely be supplying compute to most of the world in coming years, are not concerned at all with Microsoft support.
Mainframe is not dead and not dying, see how those predictions have worked out for the past 30 years.
Re: IBM is exiting hardware biz
I agree completely that IBM doesn't _need_ to be solely a services company but at the moment they are chasing share price/dividend at least until Q1/2016 and services is where Ginni Rometty knows how to shave costs and generate signings. I believe the hardware divisions could be profitable and sustainable over the long term but they may wind up with other owners in order to achieve that.
(declaring my interest, I'm ex-IBM and disappointed by culture changes since Lou Gerstner left.)
Re: IBM is exiting hardware biz
Agree, but I think the focus is wrong on services. IBM has been divesting services businesses, e.g. CRM, because they are commoditized with little profit/high risk. Anyone can open a call center. IBM is clearly steering towards software.
RE:The problem when working with raw capacity shipped is that it only tells a bit of the story
Hi Martin, totally agree, since mainframe storage is more expensive than midrange storage, cost per TB and TB shipped doesn’t tell the whole story either. Unfortunately IDC no longer breaks storage down into high end and midrange and NAS or SAN, so the only info available is revenue generated and capacity shipped. My point though is you can at least understand more of the story if you have both the revenue generated and capacity shipped evaluated in an article such as this, not just the revenue generated. Even though IBM generated less revenue, they shipped more capacity and it would have been good to include that vs. just saying IBM is going down the drain because their revenue went down when in fact they may not have lost any customers and their customers just paid less or moved to a less expensive brand of IBM storage.
One additional comment on your question What has the impact of the Engenio acquisition had on NetApp's capacity shipped?” One thing that is important to understand is that the OEM, not NetApp gets credit for those shipments as IDC bases their numbers on Branded revenue and Branded capacity shipped. So even though roughly 35% of IBM storage shipped is OEMed from NetApp, NetApp doesn’t get credit for that in the IDC charts, IBM does.
IBM: "I Been Misled"
IBM is leaving the hardware biz
I have to agree with MadMike. The long range goal of IBM is getting out of the hardware manufacturing game.
"Business Services" pays better. Round robin email, endless meetings and arcane contracts and employee rules are far cheaper than actually having real engineers and knowledgeable techs.
This of course means they will have to change their name to IBS, or iBS. This will more accurately reflect their new offering, BS. (bullshit for those not familiar with the abbreviation)
Because after all, if you can't dazzle them with brilliance, baffle them with bullshit. It's cheaper. And it certainly plays to their current strength.
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