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How the Server Market Could Impact IBM’s Growth in Fiscal 2Q17

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Server market continues to decline

Earlier in this series, we discussed IBM’s (IBM) partnership with American Airlines, which is welcome news after IBM lost WhatsApp (FB).

Let’s see what can be expected of IBM’s Systems segment in fiscal 2Q17. This segment includes the systems hardware business, which sells servers and storage. According to Gartner, global server shipments and revenue fell 4.2% and 4.5%, respectively, in the first quarter of 2017. The Asia-Pacific region was the only geographic market where shipment sales increased.

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In the server market, the hyperscale data center space reported an increase in purchases. However, the enterprise and small-and-medium-sized business spaces continue to struggle as businesses consider migration to the cloud. IBM’s Systems segment is expected to report a fall in fiscal 2Q17, as the server market has experienced a consistent decline.

Factors impacting IBM’s Systems segment

Increased cloud adoption has changed IT (information technology) spending priorities in terms of servers and storage, which has negatively impacted IT hardware demand and players such as IBM.

IBM’s z Systems mainframe line, which was last refreshed in 2015, is reeling under cyclical pressure. Its Power Systems servers also reported a fall in revenue, as a surge in Linux workloads failed to counterbalance the fall of UNIX. Flash storage demand came to the rescue of IBM’s Storage, which saw its hardware sales grow 7% in 1Q17.

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