IBM reported its first quarter fiscal 2014 results late Wednesday, once again showing weakness in its server hardware business. Big Blue however has a plan to change its hardware business fortunes.
For the quarter, IBM reported revenue of $22.5 billion, for a four percent year-over-year decline. The biggest drag on IBM's revenue was its Systems and Technology hardware unit, with reported revenue of $2.4 billion for a 23 percent year-over-year decline.
"We had strong growth in software, but hardware performance, especially in the U.S. remains challenged," Martin Schroeter, Chief Financial Officer and Senior Vice President, Finance and Enterprise Transformation at IBM, said during his company's earnings call.
Schroeter noted that IBM is selling its industry-standard x86 server business to Lenovo and is focusing on building Power-based systems and mainframes for future growth. IBM first announced its intent to sell the company's x86 server business to Lenovo for $2.3 billion in January.
Looking at the remaining elements of IBM's server business, Schroeter said that System Z revenue was down 40 percent, with MIPS down 19 percent year-to-year.
"System Z is a core franchise which provides mission-critical infrastructure for our customers, and we continue to invest in the platform," Schroeter said. "It’s worth noting that earlier this month we celebrated the mainframe’s 50th year."
IBM's Power server revenue declined 21 percent on a constant currency basis, and it's an area IBM is seeking to address with a number of initiatives.
"We are repositioning Power and building an ecosystem around OpenPOWER, and we have taken actions across Power and storage to right-size the business to the market dynamics," Schroeter said.
Schroeter explained that the OpenPOWER consortium makes Power technology available to an open development alliance. He added that IBM is working on making Power a key target for the Linux operating system as well. IBM now has over 800 ISVs writing applications for Linux on power.
A Power systems hardware refresh is also expected to boost interest and marketshare.
"We are expanding our Linux capabilities through our POWER8 launch this year," Shroeter said. POWER8 is the first processor built for big data and delivers better cloud economics."
Shroeter said that it's important from an ecosystem standpoint to have the most competitive processor in play in the space that you are targeting.
"For us, we think POWER8, which is going to target that low end certainly initially is a very powerful processor that is really well-suited to both big data applications and cloud environments," Shroeter said.
Even with the OpenPOWER consortium, the Linux focus and the new Power8 system, IBM is not expecting 2014 to be a strong year for Power revenues.
"Power is not going to turn around right away; in fact, I think 2014 is going to be a difficult year for Power, if all you were to do is compare year-to-year revenue growth," Shroeter said. "But we are absolutely taking the right actions to make the Power platform a sustainable and highly attractive economic model for us."