A Publication of iSeries 400 Experts Total Information Service
By Davin Wilfrid
Friday April 20, 2007
IBM has reported that System i revenue has declined for the sixth consecutive quarter, with revenue dropping 13% year-over-year.
IBM says a lack of upgrade sales is to blame.
“System i revenues declined 13% year-over-year as sales of upgrades remained weak,” said IBM CFO Mark Loughridge during a Webcast announcing the quarterly earnings on April 17.
System i was the only line of server to decline in revenue during Q1 2007. System p revenue grew by 14% year-over-year, System z by 12% year-over-year, and System x by 7% year-over-year.
Report disappoints analysts
Industry analysts call the System i’s extended slump troubling.
“The System i decline was all the more disappointing as the first period of last year was also a down quarter. So it should have been an easy comparison. IBM said the latest drop was due to an ‘upgrade weakness,’ but we think the System i suffers from a chronic ‘marketing weakness,’” says Bob Djurdjevic, president, Annex Research, Phoenix, AZ.
Djurdjevic says the biggest challenge facing the System i has not been developing the latest technology, but proving to the marketplace that the server possesses it.
“The System i still has the stigma of an old and proprietary system. That, of course, is not true. This IBM midrange server has the underlying technology that is every bit as advanced as anything you will see in the marketplace. And it has an integrated design that never breaks and is easy to use. The fact that there is still such a wide gap between facts and perceptions is a marketing failure,” he says.
Analyst Clay Ryder says the Q1 2007 results are not surprising because IBM had not made significant changes to its marketing or technology over the past few months.
“I don’t think they did much different last quarter than they had the previous one. So if you do the same things, you generally get the same results,” says Ryder, VP and COO, Sageza Group, Union City, CA.
Recent IBM steps could reverse the trend
Djurdjevic says recent IBM actions could put the System i back on track. He points to IBM’s increased focus on industry-specific applications and the small and medium business (SMB) market as examples.
“The new Vertical Industry Program (VIP) that the System i team launched… is a step in the right direction. It is aimed at taking the System i back to its roots — the application-driven SMB marketplace. The move still leaves a wide price gap at the entry level between the System i and the lower-priced Intel competition, which may hamper IBM’s revival in its effort to woo new SMB customers. Yet the System i VIP rescue mission is critical for IBM to be taken seriously as a global SMB vendor,” he says.
Ryder says the new System i 515 could generate results starting in Q2 2007.
“The challenge is to convince the marketplace that it’s a relevant, viable platform. I think the 515 is the best shot they have had in a long time to go after new workloads at the lower end of the scale,” says Ryder.
To see IBM’s presentation on Q1 2007 earnings, see www.ibm.com/investor/.
IBM has solid quarter overall
IBM boasted a good first quarter of 2007 with $22 billion in revenue, up 7% year-over-year.
The Systems and Technology group grew by 2% year-over-year, with poor performances by the System i, Microelectronics, and System Storage divisions offsetting gains by the System p, System z, and System x platforms.
The Software segment grew by 9% year-over-year, to $4.3 billion. The increase was driven largely by middleware products, which experienced a 10% revenue increase year-over-year. WebSphere revenue grew by 14% year-over-year, while Information Management software revenue grew by 20% year-over-year.
IBM Global Services revenue was up 8% year-over-year, to $12.5 billion. Global Business Services revenue grew by 9% year-over-year, to $4.2 billion. Global Technology Services revenue increased 7% year-over-year to $8.3 billion.
IBM’s gross profit margin increased year-over-year for the 11th consecutive quarter, from 39.1% in Q1 2006 to 40.2% in Q1 2007. |
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