The latest financial results this week from arguably the two most influential enterprise IT suppliers of the past 30 years demonstrate again how quickly the technology landscape is changing.
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First, IBM. The company’s hardware revenue is crashing – down 26% year on year in its fourth quarter, following an 18% decline in the previous quarter.
It was no surprise when IBM subsequently announced the sale of its x86-based server business to Lenovo – the Chinese supplier that has managed to keep making a profit from IBM’s former PC division.
The acquisition, for $2.3bn and affecting 7,500 employees, was nearly $1bn less than Google paid just a week before for Nest, a company with about 200 staff that makes internet-connected thermostats.
IBM has hung on to its Power systems servers and its mainframes – each of which are much higher margin products than Intel-based servers, and have more strategic importance as IBM builds its cloud datacentres. But sales of both those product ranges fell faster than the x86 servers – down 31% and 37% respectively.
The cash from Lenovo won’t be sitting in IBM’s bank account for long. In the past few weeks, the company announced a $1.2bn investment in building cloud datacentres, and $1bn to grow sales for its Watson cognitive computing technology.
Before long, IBM’s own datacentres will be the biggest customer for its remaining server hardware.
Second, Microsoft. To the surprise of many, considering the general gloom that surrounds every mention of the software giant’s name, Microsoft beat expectations in posting record second quarter revenue.
But delving into the figures shows why – enterprise software spending was the star of the show, with SQL Server, System Center, Office 365 and Azure all doing well. Take out the new Xbox and Microsoft continues to decline as a consumer supplier – Surface tablet sales doubled, but Apple still makes seven times more revenue from the iPad. Many of those Surface sales no doubt went to corporate users anyway.
The messages are clear – the historic IT industry is commoditising; hardware is going into the cloud; and it will be increasingly difficult to maintain both a consumer and an enterprise IT business in one company.
IT managers need to closely watch these trends and adjust their supplier relationships accordingly.