Whither Thou Goest, Enterprise Hardware?

    Will they or won’t they? That is the prevailing question surrounding IBM’s server business and the company’s penchant for exiting lucrative hardware markets before they decline.

    But while the fate of one business unit, or one company for that matter, is important to the IT industry, the bigger question is whether the future truly bodes ill for server hardware infrastructure, and if so, what will become of the technology that still provides the foundation for all the software-oriented architectures coming our way?

    Rumors have been swirling for several weeks now that IBM is looking to unload at least part of its server business to Lenovo, the same company that took over its PC arm in 2005. Presumably, this would include much of its x86 line, which, despite recent declines, still contributes a hefty share to the company’s bottom line. However, IBM is committed to transforming itself from an old-line platform provider to a new-style software and solutions firm more attuned to the evolving cloud and mobility markets. This isn’t to say the company will shed hardware entirely, but that it views circuits and silicon as more of a strategic asset than a standalone business opportunity.

    And judging by the latest numbers, at least, there is a point to this madness. IDC’s most recent report on the worldwide server market did show a slight uptick in revenue in the fourth quarter of 2012, but this was after five straight quarterly losses. Even more ominous, shipments continue to decline, down nearly 4 percent in Q4 and 1.5 percent for the year, topping out at just over 8 million units.

    If that is the case, then, where does that leave the rest of the server old guard, namely Dell and HP? Dell is already prepping its investors with advanced word of significant gains in server sales at the expense of HP. If Dell is to be believed, both Gartner and IDC will peg its share at about 28 percent of the market in Q1 2013, while HP will drop from about 35 percent to 31 percent. This is likely to be a crucial battle for both companies, considering Dell’s ongoing struggle to go private and HP’s still unclear plans to reformulate its business model for the 21st century data environment. As yet, neither company has announced long-term plans for IT hardware lines, which means the two could end up squabbling over the scraps of a declining market for some time.

    And remember, all this is happening against the uncomfortable backdrop of large server buyers, the Facebooks and Googles of the world, increasingly turning to their own suppliers for custom-built hardware. These large web-facing enterprises not only represent volume purchases that put non-data-oriented behemoths like GM and Exxon to shame, but they are likely to assume greater and greater responsibility for IT infrastructure among small and mid-level companies looking to leverage the cost-effectiveness and flexibility of the cloud. And that, dear reader, will have financial repercussions not only for the top hardware vendors but up and down the channel as well.

    This isn’t the first time long-standing business relationships have been threatened by advancing technology, and it won’t be the last. It should be clear to everyone by now that the IT hardware market will be radically different by the end of this decade, which means manufacturers, distributors and even customers will need to prepare themselves, and their business models, if they are to successfully navigate the rough seas ahead.

    Change should not be feared, but neither should it be ignored.

    Arthur Cole
    Arthur Cole
    With more than 20 years of experience in technology journalism, Arthur has written on the rise of everything from the first digital video editing platforms to virtualization, advanced cloud architectures and the Internet of Things. He is a regular contributor to IT Business Edge and Enterprise Networking Planet and provides blog posts and other web content to numerous company web sites in the high-tech and data communications industries.

    Latest Articles