Amid Poor Earnings HP Launches Gen8 Servers

The bad decisions HP has made, especially announcements to kill WebOS and its tablet devices and its decision to get out of the PC business, have finally hit home.  The company’s 1Q2012 financials were dismal.  Revenue was down 7% while earning per share dropped 32%.

Still, don’t write off HP so quickly. Just last month HP announced a new line of servers, the HP ProLiant Generation 8 (Gen8). These servers represent an effort to redefine data center economics by automating every aspect of the server life cycle and spawned a new systems architecture called HP ProActive Insight architecture, which will span the entire HP Converged Infrastructure. HP clearly continues to play the game.

In fact, HP is adding features into the Gen8 servers, such as integrated lifecycle automation that it estimates can save 30 days of admin time each year per admin; dynamic workload acceleration, which can boost performance 7x; and automated energy optimization, which HP promises will nearly double compute-per-watt capacity, thereby saving an estimated $7 million in energy costs in a typical data center over three years.

Compared to the HP results, IBM had a good quarter, announcing fourth-quarter 2011 diluted earnings of $4.62 per share, compared with diluted earnings of $4.18 per share in the fourth quarter of 2010, an increase of 11%. Fourth-quarter net income was $5.5 billion compared with $5.3 billion in the fourth quarter of 2010, an increase of 4%. Operating (non-GAAP) net income was $5.6 billion compared with $5.4 billion in the fourth quarter of 2010, an increase of 5%. All this despite a weak quarter for its hardware group, which reported revenues of $5.8 billion for the quarter, down 8% from Q4 2010. The group’s pre-tax income was $790 million, a decrease of 33% due mainly to unexpectedly weak mainframe sales following a streak of record setting mainframe quarterly gains.

But still Gartner found IBM tops among all servers in Q4 2011 and #1 in the market for UNIX servers with 52.8% market share in that same quarter. IBM increased quarterly revenues by 17% year over year with IBM Power Systems and improved its share in comparison to Q4 2010 by 10.9%. For the full year of 2011, IBM led the UNIX server market with 45.9& market share, a gain of 6.9 points over 2010. IBM grew UNIX revenues by 23% over 2010, according to Gartner.

IBM also led the market for servers costing more than $250,000, attaining 69.4% factory revenue share in the fourth quarter with IBM System z mainframes and Power Systems. IBM also led this market for the full year of 2011 with 8% revenue growth over 2010, capturing 63.7% market share.

Meanwhile, IBM announced 570 competitive displacements in 4Q 2011 alone and nearly 2,400 competitive displacements in 2011for its servers and storage systems. For Power, it had more than 350 competitive displacements in 4Q alone, which resulted in over $350 million of business. Roughly 60% of the displacement by Power came from HP. Overall, almost 40% of the 2,400 displacements came from HP and more than 25% came from Oracle/Sun, another company that has struggled to get its product strategy on track.  IBM reports the competitive displacements in 2011 generated over $1 billion of business. 

IBM spent much of 2010 optimizing its Power Systems lineup, the latest optimized for data-intensive workloads, and buyers responded. The POWER7 processor offers 4, 6 or 8 cores per socket and up to four threads per core. With a 4.25 GHz top processor speed and an integrated eDRAM L3 cache these systems can fly.  In fact, IBM reports Power grew 6%, the fifteenth consecutive quarter of share gains in Power.

In other achievements from IBM’s Systems Group its x86 machines, the System x, scored a benchmark success with a world-record 4-processor result for Linux on the two-tier SAP Sales and Distribution (SD) standard application benchmark. This was achieved with an IBM System x 3850 X5, running IBM DB2 9.7, Red Hat Enterprise Linux 6.2, and SAP enhancement package 4 for the SAP ERP application Release 6.0. Specifically, the x3850 X5 achieved 12,560 SAP SD benchmark users with 0.99 seconds average dialog response, 68,580 SAPS measured throughput of 4,115,000 dialog steps per hour (or 1,371,670 fully processed line items per hour), and an average CPU utilization of 98% for the central server.

Ironically, the previous best four-processor result, 12,204 SAP SD benchmark users on Linux, was achieved by the HP ProLiant DL580 G7.  The new benchmark-winning IBM x3850 X5 was configured with four Intel Xeon E7-8870 processors at 2.40GHz with 30MB shared L3 cache per processor (4 processors/40 cores/80 threads), 512GB of memory, 64-bit DB2 9.7, Red Hat Enterprise Linux 6.2, and SAP enhancement package 4 for SAP E.

IBM is not hesitating to press its advantage.  Besides its Migration Factory to facilitate migration to IBM platforms, it announced services designed to help companies upgrade IT infrastructures in the face of technology challenges like exponentially larger data volumes, server sprawl, increasingly complex infrastructures, and flat budgets. These include new financing options for those wanting to migrate from HP or Oracle/Sun technologies, including 0% financing on two key IBM systems families: IBM Power Systems and IBM System Storage. Specifically, through March 2012, organizations in the US or Canada can finance (12-month full pay-out lease) between $5,000 and $1 million in Power Systems and/or System Storage technologies at 0%.

As BottomlineIT sees it, this kind of competition is only good for companies that depend on IT.

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