Integrated Systems Sales Still Booming In Q1

July 14, 2014 Timothy Prickett Morgan

The IBM i-Power Systems platform may not be considered an integrated system by a formal definition by the box counters of the world, but it clear is and, perhaps more significantly, has been an integrated system since back in the days of the System/38 and AS/400. The modern market for integrated systems is booming, outpacing sales in the individual server and storage markets alike.

According to the latest statistics from IDC, sales of integrated infrastructure and platforms rose by 38.5 percent in the quarter ended in March, to $1.95 billion. IDC does not provide figures for the number of server nodes that underpinned these sales, but it does track the raw capacity of storage, and across both integrated infrastructure and integrated platforms, the combined storage sold in the first quarter rose by 72.3 percent to a total of 653.8 petabytes of capacity.

In case the two categorizations are not obvious, integrated infrastructure platforms combine servers, switches, and storage into a pre-configured stack that is ready to run distributed workloads either on bare metal or on hypervisors deployed on server nodes. (Think Flex Systems or PureFlex in the IBM lingo.) Integrated platforms are tailor-made for specific workloads–database serving, big data analytics, middleware serving, and so forth–and have their hardware designed to best run their software; the revenue from the software is also counted in the platform. (Think PureApplication systems in IBMspeak.) In 2013, when IDC first started to track this part of the market, the company lumped these two types of machines into one category and did not put the revenues for the software into the integrated platforms. But starting with the year-end statistics for 2013 and continuing on with the first quarter stats for 2014, IDC has broken the numbers for these two aspects of the integrated systems market out separately and has included software revenues in the integrated platforms.

The integrated infrastructure part of this market segment is growing at a very high rate as enterprises use converged infrastructure for greenfield applications such as virtual desktop infrastructure and test/dev clouds and then come back and buy more equipment to move over core applications and databases. Many customers that started buying Unified Computing System machines from Cisco Systems to try out the idea on a particular workload have come back two, three, or four times to buy even more iron. And this is fueling sales for Cisco iron as well as that from its partners VCE, EMC, and NetApp.

As you can see from the table above, Cisco and its partners account for a little under 60 percent of the total market for integrated infrastructure system sales. That is a very dominant position indeed, and it makes the efforts by IBM, Hewlett-Packard, Dell, and others pale by comparison. But the other vendors are growing faster than Cisco and its NetApp and VCE partners, so don’t count them out quite yet. The interesting bit is that these raw converged systems now have an annualized run rate of over $5 billion a year and if this rate can hold, it will account for an annualized run rate of around $8.5 billion a year from now.

The platform side of the integrated systems business is not growing anywhere near as quickly as that for the raw infrastructure, but it is still growing at a pace that is better than the server or storage markets and, presumably, the profits on these integrated platforms are better over the long haul than for plain vanilla servers sold by the rack.

In this integrated platforms market, Oracle was the first mover and still has the dominant position, as you can see from the table above. Across all vendors, what Oracle calls “engineered systems” and which includes its Exadata database, Exalogic middleware, and Exalytics in-memory database appliances, make up nearly half of the revenues for this segment of the integrated systems space. Oracle’s share of this segment is growing as sales slow for other vendors. HP saw good growth in the quarter, with revenues up 71 percent and outpacing the market for integrated platforms by nearly an order of magnitude, but as you can see, it is starting from a very small customer base and still only generated $15.5 million in sales for such preconfigured machines in the first quarter. IBM, at $74.3 million in sales, sold a lot more iron, but IBM’s integrated platform sales fell by 21.2 percent and it lost 3.6 points of market share. Other vendors as a group just held their ground. All of this growth is really attributable to Oracle, and that has to be particularly annoying to IBM, which thinks of itself as a systems vendor and which has been for decades. The integrated platforms market accounted for $3.58 billion in revenues in 2013, and will probably break through $4 billion in 2014 if growth rates can get back to where there were last year. This is a nascent and relatively small market, so it is hard to guess, but you have to figure that IBM wants to sell more stacks and less raw iron. That is in part what the sale of the System x division to Lenovo Group is all about.