Infrastructure // PC & Servers
Commentary
1/29/2014
11:40 AM
Andrew Binstock
Andrew Binstock
Commentary
Connect Directly
RSS
E-Mail
50%
50%

IBM Sells Its Business Machines: Takeaway Lessons

You've seen IT silver bullets come and go before? Make no mistake: IBM truly expects data centers to move to the cloud.

Last week, IBM announced that it was selling its low-end server business to Chinese hardware manufacturer Lenovo. The deal has been widely summarized in the trade press as the logical result of the commoditization of x86-based servers, in much the same way PCs were commoditized a decade ago. And because IBM tends not to compete in low-profit product lines, this transaction was inevitable and makes simple, straightforward sense. If only things were that simple!

While it's true that IBM has been steadfastly moving out of commoditized hardware sales, the timing of those moves has been significant. When it sold off its disk-drive business, disks were still good business, but the company saw a future of declining margins and shed its HDD unit. Then came the sale of its PC division to Lenovo in 2005. Eight years ago, PCs were not yet the low-profit, commodity items they are today. (Only three years before, HP purchased Compaq in large part because of its PC market share.)

The pattern here is that IBM gets out of profitable businesses before they start a steep descent. Industry analyst IDC projected in 2013 that IBM grossed $3.3 billion in the low-end server market and affirmed that the company was the largest vendor in the space, slightly ahead of HP and significantly ahead of Dell. For IBM to pull out of a market sector in which it held the top spot, something more than a simple, logical event must have occurred. The company must have seen something others didn't see or didn't recognize. And, in fact, it did.

Read the rest of this story on Dr. Dobb's.

Comment  | 
Print  | 
More Insights
Comments
Threaded  |  Newest First  |  Oldest First
cbabcock
50%
50%
cbabcock,
User Rank: Strategist
1/29/2014 | 1:02:56 PM
IBM and the China connection
IBM is also selling businesses that both Lenovo and the Chinese government consider vital to China's future. This time, Lenovo was reluctant to buy at IBM's price, but it's a key gain as a computer manufacturer to take over the mantle from IBM.
DDURBIN1
50%
50%
DDURBIN1,
User Rank: Ninja
1/29/2014 | 1:03:03 PM
So what did IBM see?
No doubt the cloud market and also SAAS are the reasons IBM is leaving the intel server market as these two offerings expand its less likely to need on premise servers.  Its the internet of things at work.
Laurianne
50%
50%
Laurianne,
User Rank: Author
1/29/2014 | 1:54:05 PM
IBM's next chapter
Andrew's point about IBM's exiting timing is astute. The old-world hardware is a radically different business than the new star at IBM -- Watson and cognitive computing technologies. IBM found the services wave at the right time for the company. It's betting big on cognitive as the next wave. Do you think it's a smart bet, readers?
Michael Endler
100%
0%
Michael Endler,
User Rank: Author
1/29/2014 | 6:28:11 PM
IBM looking ahead-- but how far?
Really rich analysis. I find the idea that IBM foresaw the cloud persuasive, but the company sure seems to have had a rocky go recently with Wall Street. Not sure if it represents any real concern for their future roadmap (Microsoft and Apple both get more kneejerk grief from investors than either legitimately deserves), but one wonders when IBM's prescience will help it to overcome some of these short-term challenges.
Server Market Splitsville
Server Market Splitsville
Just because the server market's in the doldrums doesn't mean innovation has ceased. Far from it -- server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary driver is now service providers, not enterprises.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Tech Digest - August 20, 2014
CIOs need people who know the ins and outs of cloud software stacks and security, and, most of all, can break through cultural resistance.
Flash Poll
Video
Slideshows
Twitter Feed
InformationWeek Radio
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.