IBM storage hardware revenues fall in latest quarter

IBM storage hardware revenues fell substantially in its second 2019 quarter – but new high-end storage is coming later this year.

Overall Big Blue’s revenues of $19.2bn were dragged 4.2 per cent down y/y by lower Systems business and Global Technology Services earnings. Profits of $2.5bn were 4.2 per cent higher y/y, driven by strong Cloud and Cognitive Software segment income.

The business segment results:

The picture is one of three larger software and consulting business hobbled by a smaller and poorly-performing hardware-dominated systems business.

Inside the systems business, Hardware accounted for $1.3bn, down 23 per cent y/y, and Operating System software $0.4bn, up 3 per cent. Gross hardware profit was 43.6 per cent while gross software profit was 84.3 per cent. 

Z mainframe revenues fell 41 per cent, Power server revenues rose 3 per cent while storage revenues slid 21 per cent. IBM attributed both falls to product cycle dynamics in IBM Z and the related high-end storage. Kavanaugh also mentioned ongoing competitive dynamics and pricing pressures in the mid-range.

He said in the earnings call: “We are going to come out with new innovation on our high-end mainframe and our high-end storage later in 2019.”

That indicates a new DS8000 array may see the light of day.

Quarterly storage revenue trend

What was a $3.7bn storage hardware business in 2011 has shrunk to a $1.9bn business in 2018.

Blocks & Files has charted IBM’s storage hardware revenues by quarter and year to track year-on-year quarter changes; 

The chart shows constant declines since 2011 with little sign of overall product cycle dynamics. There were increases in 2017, possibly consequent on the Z mainframe introduction, but they weren’t sustained in 2018. The Z mainframe introduction helped storage hardware revenues to rise for a while but revenues fell back as the refresh cycle faded

Under-performing hardware business sell-offs

Concerning pricing pressures in mid-range storage, IBM announced the gen 2 object storage appliance earlier this month, with price drops of up to 37 per cent in cost per terabyte and up to 25 per cent throughput increase.

IBM does not split out storage software revenues, and Blocks & Files suspects these are in a much healthier state than storage hardware.

IBM has sold off several under-performing and non-strategic hardware businesses: networking in 1999, PCs in 2005 to Lenovo, and X86 servers in 2014, again to Lenovo. Could the the storage hardware business head in the same direction?

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