Is China Hurting U.S. Vendors?

Shipments of servers from Chinese vendors grew at a rapid pace while the top server vendors in the U.S. declined during the first quarter of this year.

Worldwide server shipments were 2.3 million units during the first quarter, growing by just 1.4 percent compared to the same quarter last year, according to Gartner.

Growth was driven by Chinese server vendors Huawei and Inspur Electronics, which were ranked fourth and fifth, respectively, behind the declining Hewlett-Packard, Dell and IBM.

Huawei has been in the top five for server shipments for more than a year, but Inspur Electronics is a new entrant. Inspur builds blade servers, rack servers and supercomputers, and is best known for being involved in the construction of China’s Tianhe-2, which is currently the world’s fastest supercomputer, according to Top500.org.

Chinese servers partly benefitted from the 18 percent shipment growth in the Asia-Pacific region, while shipments in other regions declined, Gartner said in a statement.

Server buying trends have changed in recent years. Companies like Facebook, Google and Amazon, which buy servers by the thousands, are bypassing established server makers and purchasing hardware directly from manufacturers like Quanta and Inventec. That trend in part led to the establishment of the Open Compute Project, a Facebook-led organization that provides server reference designs so companies can design data-center hardware in-house.

Similarly, Chinese cloud providers are building mega data centers and buying servers from local vendors instead of going to the big name brands, said Patrick Moorhead, analyst with Moor Insights and Strategy.

The trend of buying locally is partly due to the security tension between the U.S. and China, but servers from Chinese companies are also cheaper, Moorhead said.

The enterprise infrastructure is also being built out in China, resulting in a big demand for servers. There is also a growing demand for servers from little-known vendors based in Asia — also known as “white box” vendors — in other regions, Moorhead said.

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Will IBM Realize Growth In 2015?

International Business Machines Corp said it is projecting growth in its hardware sector next year as the company invests in research and development and abandons low-performing ventures.

The comments come less than one month after the world’s largest technology service company reported its lowest quarterly revenue in five years, weighed by sluggish global demand for its hardware, which plunged 23 percent in the first quarter of 2014.

The company added that growth in Latin America, the Middle East and Africa remain strong, and blamed falling revenue in China on government reforms affecting state-owned clients, and on the country’s hardware-heavy portfolio.

“We move on and we spread ourselves out, more industries, more clients, cloud, data, et cetera, around there,” said IBM Chief Executive Ginni Rometty at an investor briefing on Wednesday.

Chief Financial Officer Martin Schroeter said to stabilize the hardware sector IBM would continue to “refresh” hardware and further invest in research and development.

“Quite frankly, we are seeing very good growth out of software, good growth out of services, but challenges in hardware,” said Schroeter. “We will stabilize that hardware base and I am comfortable we will make that happen in 2014,” he said.

He reiterated the company’s EPS target for 2015 of at least $20. He expects a shift to higher-value business to bring in $3.25 and share repurchases to add $2 in earnings per share by 2015.

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Cisco Goes To The Cloud

Cisco Systems Inc will offer cloud computing services, pledging to spend $1 billion over the next two years to make a foray into a market currently dominated by the world’s biggest online retailer Amazon.com Inc, the Wall Street Journal reported.

Cisco said it will spend the amount to build data centers to help run the new service called Cisco Cloud Services, the Journal reported.

Cisco, which mainly deals in networking hardware, wants to take advantage of companies’ desire to rent computing services rather than buying and maintaining their own machines.

Enterprise hardware spending is dwindling across the globe as companies cope with shrinking budgets, slowing or uncertain economies and a fundamental migration to cloud computing, which reduces demand for equipment by outsourcing data management and computing needs.

“Everybody is realizing the cloud can be a vehicle for achieving better economics (and) lower cost,” the Journal quoted Rob Lloyd, Cisco’s president of development and sales as saying.

“It does not mean that we’re embarking on a strategy to go head-to-head with Amazon.”

Microsoft Corp last year said it was cutting prices for hosting and processing customers’ online data in an aggressive challenge to Amazon’s lead in the growing business of cloud computing.

Cisco could not be immediately reached for comment by Reuters outside regular U.S.business hours.

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LPDDR4 Smartphones Coming Next Year

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A modern phone with 2GB of memory works just fine and since all Android chips and the OS itself support 32-bit mode only, it doesn’t makes much sense to jump over 3.5GB anytime soon.

Still, 64-bit support for Android might be coming after all and Samsung has a solution for people who want more than 3GB on their phone. Samsung has announced the first 8 gigabit (Gb) 4GB RAM module based on low power double data rate 4 (LPDDR4 memory).

It is a 20nm chip and has the lowest energy consumption and higher density to date. Four 8Gb dies combine to offer a single 4GB module we should see them in smartphones and tablets in the near future.

With 3.1 Gbps bandwidth the new LPDDR4 can deliver a 50 percent speed boost over the existing DDR3 and LPDDR3 based chips. Samsung also claims that LPDDR4 will enable a data transfer rate per pin of 3,200 megabits per second (Mbps), which is twice that of the 20nm-class LPDDR3 DRAM.

The Samsung claims that the chip needs 1.1 volts which is 40 percent less than what you would need for 20nm DDR3 chips and mass production starts in 2014.

It is not known when we can expect to see phones and tablets based on LPDDR4 anytime soon, but a dreamer can hope that phones such as Samsung Galaxy S5 might end up using one. After all this should be the next big thing, at least this is what Samsung wants you to believe.

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Will Businesses Accept The Chromebook?

Sales of Chromebooks enjoyed rapid growth,going from basically nothing in 2012 to more than 20 percent of the U.S. commercial PC market, analyst firm NPD reported, while Windows PCs and Macs remained flat at best.

NPD estimated that, throughout all of 2013, 14.4 million desktops, notebooks, and tablets were sold through U.S. commercial channels, typically resellers. That compares to 16.4 million PCs, overall, sold in the U.S. during the third quarter alone–excluding tablets, according to IDC. All told, about 46.2 million PCs have been sold in the U.S. during 2013, IDC found.

Within that segment, however, NPD reported some intriguing findings. Chromebooks, once largely the province of Acer and Samsung, have been embraced by Dell, HP, and others–not the least of which are paying customers. In 2012, Chromebook sales were “negligible,” NPD reported. But in the space of a single year, they climbed to 21 percent, NPD found, helping push overall notebook PC growth up by 28.9 percent.

Windows notebooks, however, contributed nothing to that, as NPD found that growth was flat. Worse still, Macs actually declined, with combined sales of desktops and notebooks falling by 7 percent. Windows tablet sales tripled, albeit off what NPD called “a very small base”.

The message? Businesses are turning to the Web, which Chromebooks almost exclusively run. And those low-cost, Net-focused devices are becoming engines of productivity. As a result, they’re receiving validation from traditional PC vendors including Acer, Asus, Dell, and Hewlett-Packard, plus Google’s own Pixel.

“The market for personal computing devices in commercial markets continues to shift and change,” saidA Stephen Baker, vice president of industry analysis at NPD, in a statement.A “New products like Chromebooks, and reimagined items like Windows tablets, are now supplementing the revitalization that iPads started in personal computing devices. It is no accident that we are seeing the fruits of this change in the commercial markets as business and institutional buyers exploit the flexibility inherent in the new range of choices now open to them.”

Naturally, tablet sales continued to explode, capturing 22 percent(or about 3.16 million units) of all the computing device sales sold through the U.S. channel. Of all tablets sold commercially, iPads dominated with 59 percent of all unit sales, leaving the rest to Android (which grew more than 160 percent) and Windows.

Baker said that diversity will be key to the future success of hardware makers, a signpost for what vendors might release at 2014 and the weeks and months following.

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Xerox Moving Into IT Services

Printer and copier maker Xerox Corp forecast current-quarter earnings below estimates as it quickens efforts to transform itself into a technology services provider.

Xerox, whose shares were little changed at midday, also offers services such as managing toll systems and healthcare programs to counter sluggish growth in its printers and copiers business, which accounts for about 40 percent of its revenue.

Services is now the larger part of the company’s business and lower margins in IT and business process outsourcing is dragging overall margins.

The company said it expects second-quarter revenue from its document technology business, which includes printers and copiers, to decline in the mid-single digits. Revenue fell 9 percent to $2.14 billion in the business in the first quarter.

Based in Norwalk, Connecticut, Xerox moved into business services with its purchase of Affiliated Computer Services Inc (ACS) for $5.5 billion in 2009 – the company’s biggest deal in its 106-year history.

Xerox said it plans to quicken the pace of a restructuring plan kicked off in the last quarter of 2012 and included a 2-cent restructuring charge in its second-quarter forecast.

Xerox said it expects flattish revenue for the full year, compared with previous expectations of up to a 2 percent growth, it said on a conference call with analysts.

The company said it was on track to reach its target of adjusted EPS of $1.09 to $1.15 for the full year and to generate operating cash flow of $2.1 billion to $2.4 billion.

“Europe remains weak. US remains stable, but weak. We have not seen a pickup in the US,” Xerox CEO Ursula Burns said on a conference call with analysts.

“We did see a slowdown, a bit of a slowdown, in some developing market economies. But our business model is fairly resilient in the developing markets,” she said.

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I.T. Spending On The Rise

Worldwide IT spending remains on track to increase by 6% in 2012 despite the grim economic conditions in Europe, thanks to strong software, storage, smartphone and tablet sales, according to IDC.

While 2012 has been a tough year for many IT vendors, they have done better overall than many expected in the first half of the year, IDC said.

For example, software spending has been robust, even in parts of the world where the economy has been weakest, as businesses hope software tools and applications will help them implement cost-reduction strategies.

The 6% growth compares to a 7% increase in worldwide IT spending last year. IDC expects 6% growth in 2013.

Software, storage, enterprise network and mobile device markets have offset weaker sales in servers, peripherals and PCs. However, the launch of Windows 8 during the fourth quarter should help the PC market recover next year, IDC said.

U.S. IT spending will grow by 5.9% in 2012, compared to 8.5% last year. However, the strength of the dollar during the first six months of the year means that IT spending in dollar terms will grow just 4% for the full year.

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Will Facebook Go Lower?

Facebook is still overvalued and analysts are starting to agree with us that the company could fall to about $13 a share.

SmartMoney’s Jack Hough is being quoted by Forbes as saying that Facebook should be worth about half what is now – about $29.52 billion, or just a tad over $13 per share. Hough compares Facebook to Google which trades at 3.6 times its projected revenues for 2014. Analysts expect Facebook to have $8.2 billion in sales that year which means you just multiply this figure by about three.

All makes sense and is a similar view to what I said when Facebook issued its daft IPO and people lost their shirts and underpants on the deal. Part of the problem is still that Facebook has not worked out a good way to make money from advertising and it has not got an effective mobile strategy.

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PC Sales Takes Toll On Seagate

Seagate Technology Plc’s shares tumbled as much as 8 percent on Tuesday, after the hard disk drive (HDD) maker projected first-quarter revenue below estimates on slowing sales of personal computers.

The company has been hit by sluggish economic growth and shaky sales of PCs as consumers shift toward tablets and smartphones.

FBN Securities cut its price target on Seagate’s stock to $32, saying selling prices had started to decline from their peak levels after theThailand floods last year and inventory had started rising.

Seagate’s weak outlook follows an upbeat fiscal 2013 forecast from rival Western Digital Corp, which is banking on strong sales to big businesses.

The company forecast first-quarter sales of about $4 billion, below analysts’ estimates of $4.62 billion, according to Thomson Reuters I/B/E/S.

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T-Mobile To Make More Cuts

T-Mobile USA will eliminate an additional 900 jobs in a restructuring, on top of a 1,900-job reduction at its call centers that was announced in March, the carrier confirmed on Wednesday.

T-Mobile, now with about 36,000 employees, has faced more than two years of subscriber losses. Last year, the wireless carrier lost out on a $39 billion deal to be taken over by AT&T — federal regulators rejected the deal.

In its first quarter results announced May 9, T-Mobile said it lost 510,000 contract customers. It now serves 33.4 million customers.

Not having the iPhone 4S to sell, compared to the other three major U.S. carriers, also hurt T-Mobile and lead to more contract deactivations, the company said in its first-quarter results.

A T-Mobile spokeswoman said in an email that the elimination of 900 jobs was the result of a “restructuring of key functions and departments across the company, including the elimination of some positions and outsourcing of others.”

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