IBM selling its server business. Aivars Lode Avantce

IBM Prepares to Eject Self from World of Internet Servers

• BY CADE METZ
• 04.19.13
• 2:10 PM

Facebook technicians design servers — without help from companies like IBM. Photo: Wired/Jon Snyder

IBM makes more money from the sale of computer servers than any other company on earth. And yet the tech giant still wants to gut its server operation, selling a a third of the business to Lenovo, the same Chinese company that bought its desktop PC and notebook business nearly a decade ago.

That’s the word from CRN and The Wall Street Journal. And it should come as no surprise.

According to these reports, IBM is looking to shed the kind of servers that drive much of the internet — low-cost machines build around standard “x86″ processors from well-known chipmakers Intel and AMD — and it’s just another sign that the internet server game is on the move.

Though IBM is the world’s top server seller by revenue — selling an awful lot of very expensive and specialized machines to big, traditional businesses — it’s number three in the internet-centric x86 market, behind Dell and HP. And like Dell and HP, it has come under increasing pressure from manufacturers in Asia, who are now supplying machines to some of the biggest names on the net, including Google, Amazon, and Facebook.

This past fall, Intel’s Diane Bryant told us that 75 percent of the company’s server chip revenue now companies from eight different companies — and that one of them is Google, which designs its own servers. Four years ago, that 75 percent rested solely with Dell, HP, and IBM.

The irony is that some of the manufacturers who are challenging Dell, HP, and IBM have spent years building machines on behalf of Dell, HP, and IBM. Generally, the old “big three” don’t build machines themselves. They contract with original design manufacturers, or ODMs, in Asia, and these manufacturers are now starting to cut them out of the equation.

“The ODMs are emerging,” says Jean Bozman, an analyst with research firm IDC. She stresses, however, that the big three still control a very large part of the market.

There’s a wonderful symmetry to the news that IBM is now looking to abandon this business. In 2005, Big Blue sold its PC business to Lenovo, and just this week, IDC told the world that PC biz is now officially in decline. “They saw where the market was going. They saw it was becoming commoditized and they decided to get out of it,” says Christopher Ambrose, an analyst with research firm Gartner. The server market has a brighter future than the PC biz, but it too is turning into a commodity game.

Once again, IBM has showed the world the writing on the wall.