By annie shum | March 20, 2009
Server Signs: Cisco, Sun, IBM Cloud the Future of Hardware Master Brands
Driving these market shifts are fundamental changes in user desire, demand, acquisition, and usage that are leading established hardware vendors to rethink and revise their core strategies. And we expect these changes to drive more rumor and activity, from mergers and acquisitions to the creation of new lines of business, and possibly new Master Brand vendors.
Why is it Happening? Server vendors are threatened on two fronts: By an economic recession that drives IT spending cuts or freezes; and by the growth of Cloud Computing. A long period of economic expansion, boosted by ever-decreasing acquisition costs and ever-increasing capabilities (credit Moore’s Law along with improvements in virtualization), have been driving increases in annual server sales worldwide for years. Now, the global economic recession has large numbers of user firms either re-thinking, reducing, or postponing server acquisition. For some user firms, virtualization has reduced the need for additional servers – although many firms are continuing with their traditional server acquisition plans. But overall, Saugatuck expects significantly reduced, or even relatively flat, server sales growth through 2009 and into 2010. Server vendors that are geared for growth therefore face a much more competitive market for their offerings.
The emergence of Cloud Computing during the recession doubles the threat to server vendors. In cases where hardware investment is deemed critical and necessary, users are looking more and more to Cloud as an alternative to traditional servers, storage, and other hardware. A general lack of capital and tighter credit among a growing number of user firms means more of them need to use operating income to acquire, use and support necessary IT. Traditional IT is difficult to acquire using operational monies; Cloud capabilities are not. In fact, Cloud provision, delivery and payment models tend to be designed to fit operational spending.
In the face of such uncertain demand and shifting user priorities, server vendors are jockeying for position while re-evaluating and revising their strategies. Traditional IT Master Brands are shifting into adjunct market spaces. A big example is Cisco’s recently-announced Unified Computing System. The UCS combines computing, networking, and management capabilities into a single enterprise server platform, using open source software with Cisco’s own management software. Cisco’s goal is more efficient hardware utilization using unified virtualization of servers, networking, and storage – thereby potentially reducing user IT operating and management costs. Offerings such as Cisco’s UCS also should be attractive to Cloud Computing providers seeking more integrative hardware approaches. Such an approach could yield massive savings when applied to the typically large-scale and disparate server, networking, storage and management needs of Cloud providers.
Market Impact: In short, economic conditions and the growth of Cloud Computing are pushing user demand and interest more rapidly from standalone solutions to combined, integrative, cloud-based, or cloud-centered offerings. This is pushing traditional server vendors, including Dell, HP, IBM, Sun, and others to examine their own capabilities and their customers’ needs, and develop not just tactical but strategic responses. This in turn drives interest in new and previously-unthinkable product lines, partnerships, mergers, and acquisitions. The server landscape changes on a massive scale as a result.
Not only does Saugatuck expect to see more M&A activity (and rumors) as a result, we expect to see more activity and investment by IT vendors in unexpected and previously-unrelated markets and partnerships. The IBM-Sun acquisition may or may not come to pass. But the changing nature of the IT marketplace and the server market in particular makes such a potential acquisition more believable, if not more likely.
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