Earlier this year, IBM reportedly tried to sell off its server business to Lenovo, which already owns IBM’s former laptop business. That deal didn’t work out, but IBM might be wishing it had right about now, given the latest news out of its hardware unit.
On Tuesday, Credit Suisse downgraded IBM to “underperform” citing headwinds to growth. In a research note, CS analysts wrote:
“Organically we believe IBM is effectively in decline, and we see rising headwinds ahead with: i) 34% of gross profit dollars coming from Mainframe and UNIX hardware and associated software, which we believe are under pressure; ii) the shift to cloud continues to present risks given IBM’s technology positioning; and iii) strategic portfolio management is likely to have less of an impact going forward given the smaller potential for divestitures (x86 and Microelectronics), and multiple expansion in the software space limits IBM’s ability to acquire as effectively as in the past. “
That same day, news broke that IBM is putting most of the hardware development and procurement staff on mandatory furlough at 1/3 pay for a week. Execs in the group will take no pay for the week. While furloughs are not unprecedented at IBM (or other tech vendors for that matter), they’re obviously not a good sign. According to The Burlington Free Press IBM just layed off 419 employees, mostly in IBM’s Systems & Technology group, at the local Essex Junction, Vermont facility, as part of an estimated 3,300 job cuts across the country. Sales out of that Systems and Technology Group were off 12 percent year over year in IBM’s second quarter, to $3.76 billion.
The news came just after IBM announced new x86 and Power-based Flex systems and plans to license its Power CPU design in a bid to boost market share vs. Intel which leads the league in server processors.
No doubt part of this problem is IBM-specific, but in general name-brand server makers — including Hewlett-Packard and Dell — are all under pressure as more workloads flow to cloud computing where they are often run on commodity (i.e. no-name) servers bought in bulk.