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IBM’s Power Systems Are Crucial for Its System Hardware Segment

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IBM’s Power Systems grew by 5% in fiscal 2Q15

Previously in this series, we saw that IBM’s (IBM) System Hardware and Global Financing were the only operating segments that reported YoY (year-over-year) growth in constant currency terms. We’ve already discussed z Systems’ role and contribution to IBM’s System Hardware growth. IBM’s Power Systems are focused on Unix and Linux computing. They also gained traction as its revenue improved by 5% in constant currency terms in fiscal 2Q15. As a result, IBM’s system operations got a boost from the improving performance of z Systems and Power Systems. To an extent, this was offset by a 5% fall in the storage business.

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IBM’s power processors claim to beat x86 processors

In the above chart, the price performance of IBM’s OpenPOWER chips is compared to Intel’s (INTC) Xeon offerings. The SPEC CPU2006 benchmark is used. It’s an industry standard measurement that provides a comparison of compute intensive performance. As the above chart shows, IBM’s OpenPOWER offerings provide better performance per dollar spent. Also, Intel’s Xeon chips need more cores to equal OpenPOWER chips’ performance levels. They can have a negative cost impact on DB2, Oracle (ORCL) Enterprise Edition, and Oracle Web Logic Enterprise Edition. These are software licensing models.

According to a report by the Linley Group, the 12-core POWER 8 processor is estimated to cost $2,500. In contrast, the Intel Xeon E5-2699 v3 is available for ~$3,995. IBM claims to provide POWER 8 processors that offer “up to 60% better performance per dollar spent.”

Through the POWER 8 system, IBM aims to expand its customer base in the Linux systems and with cloud-based companies.

You can consider investing in the iShares US Technology ETF (IYW) and the Technology SPDR ETF (XLK) to gain exposure to IBM. IYW and XLK invest about 4.20% and 3.51% of their holdings in IBM, respectively.

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