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Z Systems Offered Hope to IBM’s System Hardware Segment in 2Q15

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IBM’s System Hardware posted 5% growth

In the last part of this series, we saw that almost all of IBM’s (IBM) operating segments posted a fall in their respective revenue in fiscal 2Q15. However, IBM’s System Hardware segment grew 5% to $2.1 billion in 2Q15 in constant currency terms.

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Z Systems posted 50% revenue growth in 1H15

The System Hardware segment’s revenue got a boost by increased MIPS (million instructions per second) for z Systems. The delivery of z Systems’ computing power is measured in MIPS. It grew by 24%. As the above chart shows, z Systems’ revenue grew by 15% in constant currency terms in fiscal 2Q15. It grew at a rate of 50% in 1H15. Also, sales of the new z13 System that was launched in late March 2015 contributed to this growth. Power Systems reported 5% growth.

In 2014, IBM’s operating system registered a 13.40% fall in its revenue on a YoY (year-over-year) basis due to the Power and z Systems being in the later phase of the product cycle and their corresponding sales failing to deliver growth.

With z13, the company claims to have improved its capabilities in analytics, mobile, security, and the cloud space. Looking at the growth of z Systems and Power Systems, it appears that the growth in these sub-segments will be instrumental to growth in the System Hardware segment.

With the sale of low margin hardware units like x86 servers, IBM is trying to streamline its hardware business and shift its focus on Power8 servers and z System mainframes. Its strategic divestments in the hardware division combined with the launch of the new z Systems helped its System Hardware segment post 5% YoY growth.

In 2014, IBM sold its x86 server division to Lenovo (LNVGY) for $2.1 billion. Earlier, IBM was considered a market leader in x86-based servers. However, after the sale of its server business to Lenovo, it lost the title to Lenovo. Hewlett-Packard (HPQ) leads the global server systems space with a share of ~26%. Oracle (ORCL) is another leading player in this space. Its x86 servers are compatible with Oracle Solaris, Oracle Linux, and Microsoft Windows (MSFT).

If you’re bullish about IBM, you can invest in the Technology SPDR ETF (XLK). XLK invests 3.51% of its holdings in IBM.

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