Server Sales Surge As HP Pushes IBM From No.1 Spot, Time For Big Blue To Buy Dell

Hewlett-Packard’s (NYSE: HPQ) plan to dominate the global hardware business is working. It has a huge line of PCs and servers along with software and tech consulting arms to get a foot in the door at large companies. And, its purchase of Compaq, considered a disaster at the time, has helped it gain market share.

HP moved ahead of International Business Machines (NYSE: IBM) in server sales in the first quarter as overall server shipments rose 23%, another sign that tech’s two lean years are over.According to research group Gartner, HP sold $3.4 billion in servers in the first quarter of this year, up 16% from the same period last year. IBM’s sales in the segment were $3.o5 billion. Also-ran PC and server company Dell Computer (NASDAQ: DELL) sold $1.7 billion.

The key of HP’s success is probably the move by enterprises to inexpensive servers and virtualization software the makes servers more efficient. HP sold 672,000 servers in the first quarter. IBM sold 278,000, and in further  proof that inexpensive servers dominate the market, Dell sold 510,000. Dell’s growth was the fastest of the three. Its gross margins have shrunk, so it is likely selling severs that have among the lowest price points in the industry.

The trends may be bad for IBM. Its server revenue and unit sales are falling fast compared with the rest  of the industry. If Big Blue remains the provider of the most expensive units, it may be further pushed out of the market by frugal customers.

IBM could, of course, buy Dell to solve some of its products and move back into the fast-growing PC  market that it abandoned when it sold its PC operations to Lenovo. IBM can afford it. The company has $20 billion in cash. And, its market cap is $160 billion to Dell’s $26 billion.

Douglas A. McIntyre