Hardware Vendors: What Business Are You in, Really?


Third-quarter server sales figures are coming in this week and, not surprisingly, the numbers aren't good.


IDC reports the worldwide market declining a painful 5.2 percent year-on-year, down to $12.6 billion-the biggest fall-off since 2002. Volume systems dropped 7.2 percent and midrange fell by 9.5 percent, although high-end systems grew by 4 percent.


It seems that the industry not only has to contend with a faltering economy but a more fundamental drop-off in the need for new hardware. Blame the usual suspects-virtualization, consolidation-for the latter trend, which would indicate that, even after the current downturn is spent, we're never going to see hardware shipments like the 1990s again.


This leaves the major manufacturers in a difficult, but not impossible situation. IBM still held the top spot in Gartner's view, its 30.3 percent market share just edging out Hewlett-Packard at 29.8 percent. Still, that represents a loss in server revenue for Big Blue of about $3.86 billion. Ouch.


So, what's a hardware company to do? More than a decade ago, when I was covering the cable TV industry (I know, I've had a varied journalistic career. But hey, I go where the money is), the big threat was encroachment into the video distribution game by telecom and satellite providers. In response, the leading cable operators decided that turnabout was fair play, and they moved into broadband data, voice and professional business services. Some of them even offer wireless now.


The analogy for the business lesson they were employing actually came from about 100 years earlier-the old railroad days. It was noted that the railroad industry collapsed and many seemingly invincible companies went under as new, more efficient modes of transportation were developed. What the railroad magnates failed to ask themselves at the time was whether they were actually in the railroad business, or in the transportation business. If they had answered the latter, they would have shifted their resources to take advantage of the newer technologies. Cable operators decided they were telecommunications providers at heart, and have been at least marginally successful at transitioning into new forms of communication.


I suggest that just such a moment is approaching for the hardware industry. The question to IBM, HP, Dell and the rest is this: Are you in the server/storage business, or are you in the enterprise/data center business? In his most recent post on Intelligent Enterprise, David Linthicum wonders how IBM will balance its pursuit of a cloud strategy with its need to sell enterprise hardware and software. I'm sure IBM has its own answer, but mine is: It won't.


If the company is smart, it will recognize that increased reliance on clouds and other service-oriented schemes will eat into its hardware revenues. And that's OK, because at least the company is staking a claim on the future, rather than fighting a losing battle by clinging to the past.


And the beauty of it is, there will always be a need for hardware, and in the future, that demand will most likely come from the cloud providers that IBM and others are fostering now. Older technologies rarely go away forever. They just might not be as dominant as they once were.


After all, we have high-tech telecommunications today, but we also have railroads.