IBM’s focus on hardware and servers makes it more prone to cloud competition
Earlier in the series, we discussed Warren Buffett’s reduced stake in IBM (IBM) and the losses Berkshire Hathaway incurred due to the same. Though the cloud space continues to be competitive and concentrated, Amazon (AMZN) seems to be giving IBM more trouble than its peers Microsoft (MSFT) and Google (GOOG).
Why? It might have to do with IBM’s focus on servers and overall enterprise hardware.
The chart above by IDC (International Data Corporation) shows the market shares of leading players in the server market: Hewlett Packard Enterprise Company (HPE), Dell, Lenovo (LNVGY), IBM (IBM), and Cisco Systems. Among the top five players, only Dell has managed to increase its revenue and market share recently, most likely due to its strategic acquisition of EMC (EMC).
Server market is on the decline
Both IDC and Gartner reported a dip in server revenue in 2016. IDC reported a revenue fall of 4.6% and 4Q16 server revenue of $14.6 billion. Gartner stated that global server revenue had fallen 1.9% while shipments had fallen 0.6% in the quarter.
Conventional servers are facing a fall in demand as enterprises rapidly adopt virtualization and cloud computing technology and spend less on on-premises IT (information technology) infrastructure. The cloud platform is seeing rapid adoption because it provides flexibility in terms of scale, funds, requirements, and infrastructure.
CIO.com’s estimates show that public, private, and hybrid cloud implementations could accelerate in 2017 as CIOs (chief information officer) aim to benefit from the cloud’s economies of scale and build core applications.
Increased cloud adoption will likely benefit Amazon the most, as it’s the undisputed leader in the overall cloud space. IBM will likely be the worst hit by the fall in server demand, as it’s one of the leading players in the server space. This leadership is a big reason why IBM’s Hardware segment failed to grow in its most recent quarter.