A Publication of iSeries 400 Experts Total Information Service
Revenue drops for iSeries in Q1
2004: First decline
in over a year
Last week, IBM announced its Q1 earnings for 2004, marking the halt of year-over-year revenue growth for the iSeries. Enjoying growth throughout 2003, the iSeries took a turn for the worse this quarter with a 7% decline in revenue.
In its Q1 2004 earnings presentation, IBM
briefly skimmed over the iSeries revenue drop. “iSeries revenue
declined 7% in the first quarter, compared to a strong prior-year
quarter in which we announced the launch of the new iSeries platform.
We will announce a new iSeries product line based on integrated
Power 5 technology, which will ship near the end of the second quarter,”
says John Joyce, senior vp and chief financial officer, IBM, Somers,
NY.
Market analysts were not surprised by the iSeries revenue decline. “A 7% drop was to be expected because of the life cycle that the iSeries is experiencing. In 1998-1999, shops upgraded, so in 2000-2001 no one needed to upgrade. Then, in 2002-2003 shops upgraded again. Last year was a good year because of several one-time events — like the price drop last January and the end of life for 7xx models. If the iSeries shows growth in 2004, it will be due to the Power 5 release,” says Thomas Bittman, vp and analyst, Gartner Consulting Group, Danbury, CT.
Analysts also anticipate that the OS/400 V5R3, next generation of iSeries hardware, and Power 5 announcements will positively impact iSeries revenue for the rest of 2004.
“Power 5 is going to be launched in the next few months, and customers may have decided to wait [to upgrade] so they can deploy the new [unannounced] system. There will be some notable enhancements with the Power 5 boxes that customers are waiting for. I expect that iSeries sales will solidify or improve once Power 5 is available,” says Charles King, research director, Sageza Group, Mountain View, CA.
Gartner: What lies ahead for the iSeries in 2004
Even with some major iSeries announcements on the horizon, analysts foresee a continuous decline throughout the year. “I would have to guess that the iSeries will be down 10% in Q2, down 10% in Q3, and down 5% in Q4. You have to remember, 2002 was the worst year ever for the iSeries, so growing against that in 2003 was not hard. I don’t expect that 2004 will be any better than 2003, but I don’t think that it will be the worst year ever. The high-end sales are up for the iSeries, and the low end is just dragging the business down — there needs to be more consolidation to the high end, and there is still more low end to get rid of,” says Bittman.
Outside the iSeries: The eServer family
Q1 2004 revenue for IBM’s Systems and Technology Group (merged from the
Systems Group and the Technology Group in mid-January, 2004) grew 14% year-over-year. Hardware also had a good quarter, with revenue up 16%.
The biggest surprise to iSeries market analysts was the zSeries revenue growth of 34% year-over-year, with MIPS growth of nearly 100%. “The increase in mainframe and MIPS sales was pretty remarkable. Some analysts think the mainframe is dead or dying, but it is businesses’ mission-critical, high-end enterprise application platform. The sales are up due to continuing customer enthusiasm for the z990 product — IBM really hit the note with that product and the way that it was marketed. The recent announcement of the z890 and shark storage box will start coming into play in Q3 and Q4,” says King.
The pSeries’ revenue grew 15% year-over-year, xSeries revenue grew 24% year-over-year, and Total Storage revenue grew 16%.
The rest of IBM
IBM’s Q1 2004 earnings statement reported an 11% increase in revenue from continuing operations ($22.2 billion as compared to $20.1 billion one year ago). Revenue from Global Services is up 9% year-over-year. Revenue for the Software Group ($3.5 billion) grew 11%, operating systems revenue is up 6%, and middleware revenue increased 13%. In IBM’s middleware family, Rational’s revenue increased a whopping 88%, WebSphere experienced 24% growth, Tivoli increased 18%, Lotus increased 15%, and Data Management increased 10%. For more on IBM’s Q1 2004 earnings, see www.ibm.com/investor.
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