By Timothy Prickett Morgan

The toughest job at IBM Corp isn’t being its chairman, it is being the server czar. As far as anyone can tell, IBM’s server organization has only seen year-to-year revenue growth once since 1990, and that was way back in 1995 before mainframe, AS/400 and RS/6000 server prices plummeted in the wake of fierce competition from rivals in each of those markets, notably Hitachi Ltd in mainframes, Sun Microsystems Inc and Hewlett-Packard Co in Unix, and the legion of PC server vendors pushing Windows NT.

Last year was not much better according to the detailed information IBM has just provided in its annual report. According to the report, which includes a new classification of IBM’s various operating units that has only been backcast to 1996, IBM has been steadily losing steam in the server market with the exception of its PC server business. IBM has only presented a high-level view that doesn’t break out servers by type, and the new method of reporting puts PC servers back into its Personal Systems division. So the following numbers are only for S/390, AS/400 and RS/6000 sales all in together.

In 1996, IBM says that its Server Group sold $12.7bn in servers with a pre-tax income of $3.3bn. Revenue dropped by 7% in 1997 to $11.8bn, with pre-tax income dropping by 12% to $2.9bn. Last year, IBM’s server revenues continued to slide, falling 6% to $11.1bn and pre-tax income falling another 1.9% to $2.8bn. All of those revenue figures include about a half billion in internal revenues for servers sold to other IBM divisions. Exactly how much of that revenue came from each server brand IBM isn’t saying. But Wall Street and industry analysts have taken their first stabs at what they think the server breakdown looks like. Merrill Lynch says that its best guess right now is that IBM sold $4.4bn in mainframes, $3.2bn in AS/400s, $3.1bn in RS/6000s and $1.4bn in Netfinity and other PC servers. (These numbers, say Merrill, do not include the value of base operating systems that are typically pre-loaded on IBM servers for free.) That RS/6000 number from Merrill also apparently includes about $500m in RS/6000 workstation sales, a complete reversal of the early RS/6000 market that was dominated almost entirely by workstation sales.

The latest IDC figures, which the company is reviewing in light of IBM’s new sales breakdown, show that IBM sold some $2.99bn in RS/6000s (not including high-end SP machines, which IDC classifies as mainframe-class machines), $3.31bn in AS/400s, $1.63bn in Netfinity and other PC servers, and the remaining $4.3bn in mainframes and high-end SPs. (It’s hard to say how much if that is SP machinery, but it is almost certainly more than $500m and probably less than $1bn.) Both Merrill Lynch and IDC agree that the RS/6000 business declined by about 5% in 1998, but Merrill believes, at least for the moment, that IBM will be able to get some momentum pushing its new Northstar SMP servers and its Power3-based servers and SP nodes and therefore grow Unix server revenues by a point or so in 1999. Merrill is similarly forecasting a 3% increase in both AS/400 and PC server sales and a 10% drop in mainframe sales regardless of IBM’s forthcoming G6 series of mainframes, due around September.