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TM Arun Kumar

Editorial: The Fast Changing Server Landscape

By TM Arun Kumar Wed, Apr 01, 2009

TM Arun Kumar is the Executive Editor of the Indian ChannelWorld

Two recent developments are threatening to change the current market equilibrium and break down the existing market structure, which can have a lasting impact on the server market. The possible acquisition of Sun by IBM, coupled with Cisco’s entry into the blade server market, in the garb of unified computing (everything seems to be unified about Cisco these days – unified communications and now unified computing), pull the market in two diametrically opposite directions.

While one aims at consolidation, the other offsets that, courtesy the entry of a new player in the market. Where the market equilibrium will rest post these developments is perhaps too early to call. But, make no mistake, the dynamics of the market will change and the marginal players will get squeezed.

But why should the market dynamics change? Cisco’s entry, for one, opens a Pandora’s Box. As computing moves more into the data centers, everyone is aiming for a larger slice of the lucrative market. The comfortable arrangement between the networking and server players was broken first by Hewlett Packard, when it came out with ProCurve. And ever since speculation was rife that Cisco would come out with its own set of blades. Add storage to the mix – HP has its own storage solutions and Cicso has now forged an alliance with EMC – and you realize where we are headed. Now, everyone wants to be a one-stop-shop for all the data center requirements of the customers, meaning the traditional ways of selling a server or a router or a storage box separately is going to go out of the window.

So, where does it leave the Big Blue? For starters, it has its own line up of servers and storage and has strong relationships with Juniper and NetApp for networking and storage respectively. Add Sun to the portfolio and its dominance in the server space (the combined market share of IBM and Sun is 42 percent, way ahead of HP’s 29.5 percent, according to IDC) looks clear. Besides, it will move IBM closer to the market leader EMC in the storage market. And those who feel that IBM is paying way too much (the deal is reportedly valued at $6.5 billion) should remember that Sun had approximately $3 billion in cash, equivalents, and marketable debt securities as of Dec 2008. So, the real cost would be about $3.5 billion, perhaps not such an expensive deal.

And contrary to the feelings held by many that IBM’s reported plans to acquire Sun is a direct reaction to Cisco’s entry into the server market, it is aimed more at the big blue’s old rival HP, which by acquiring EDS had threatened IBM’s dominance in the services market. By acquiring Sun, IBM will be returning the favor and hitting back at HP’s hardware business, which often is an entry point for the more lucrative software and services business.

What about the rest of the players in the server arena? Dell, which is a strong number three with an 11.6 percent market share, according to IDC, may be able to fight (remember, its also a large global partner of EMC). But, the others may not be. As the big players — IBM, HP and now Cisco — start turning on the heat, the others will start to feel the pinch.

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