Why IBM was smart to sell off its low-end server business to Lenovo

If you look down into the toilet, you will see IBM’s server revenue.

Data out from technology analyst firm Gartner today underlines the wisdom behind IBM’s decision to leave the market for low-end servers and other data center hardware.

Big Blue’s server revenue market share dropped nearly 29 percent year over year in the fourth quarter of 2013, according to Gartner’s latest data drop on worldwide server sales.

Server makers Oracle and Dell also saw decreases in server revenue for the fourth quarter. It’s a common theme in the age of cloud computing, when more companies are looking to companies that buy servers in huge volumes, like Amazon, Google, and Microsoft.

Such cloud providers are circumventing legacy hardware makers and going directly to low-profile companies like Quanta, which have historically built hardware for the big-name vendors but are now increasingly working directly with IT buyers.

And that’s having an effect on the old-school IT vendors like IBM.

Big Blue’s total server revenue came out to $3.6 billion for the quarter, giving it 26.5 percent of the total market. That’s quite a decline from the 34.9 percent market share figure one year earlier. And quarterly shipments dropped 20.6 percent, putting IBM’s shipment market share at 9 percent.

“IBM had a weak quarter due to its product life cycles,” Gartner noted in its report.

But there’s a pattern going on here, and it’s important. IBM has been seeing year-over-year revenue drops in seven out of the eight most recent quarters.

No wonder IBM wanted to sell certain hardware product lines to Lenovo for considerably less than the figures tossed around last year.

But don’t think Lenovo was unwise to take struggling products from IBM. There are upsides, as we pointed out last month.

Now IBM can focus on more exciting corners of the IT world, like non-relational databases in the cloud, a Platform as a Service for helping developers quickly construct apps, and even Watson on mobile phones.