IBM’s Q4 2018 results expose a storage hardware weakness that is unlikely to be fixed anytime soon.
This is not exactly an existential crisis for the company as storage hardware represents just two per cent of IBM’s business. But still…
IBM does not break out storage revenues – they are a component of the company’s systems business, along with z mainframes and Power servers.
According to IBM’s earnings charts, this segment posted revenues of Q4 $2.6bn, down 20 per cent on the year, as the z mainframe refresh cycle, now in its sixth quarter, winds down.
In the absence of a breakout, we estimate that storage hardware accounted for $450m-$460m revenues in the quarter. IBM notes falls in mid-range storage revenues with increased all-flash array sales unable to offset decline elsewhere.
IBM says it is experiencing pricing pressure in a very competitive storage market. Crudely speaking, mid-range products, except the all-flash arrays, are uncompetitive and too costly.
William Blair analyst Jason Ader, in a recent enterprise storage market review, noted IBM appears to be de-emphasising its storage array business.
Ader may be correct in his conclusion, but IBM continues to update iproduct lines. The company added NVMe technology to its mid-range products in December 2018 and will introduce this capability across its storage portfolio in the first half of 2019.
Blocks & Files thinks that IBM has better growth prospects in storage software than with storage hardware.
The company may pull in $460m a quarter from storage hardware but this is a tiny fraction of the company’s $21.8bn quarter in Q4 2018.
Nothing IBM can do with storage hardware will significantly affect its quarterly revenue number. It just does not matter that much.
The company’s recent NVMe refresh shows it commitment to safeguarding storage hardware revenues, where it can. But that appears to be the extent of its strategy. Certainly it does not care enough about this market to take the plunge and, for example, buy Pure Storage.