The worldwide server market has experienced a decline of 7.7% to $10.9 billion in the first quarter of this year. According to IDC, server unit shipments came in at around 1.9 million units, 3.9% lower than the server unit shipments in the same period last year. According to Matt Eastwood, Group VP and GM, Enterprise Platforms at IDC, the global decline in server sales was due to “ongoing server consolidation, technology transitions and challenging macroeconomic conditions across the globe.”
Dell Inc. (NASDAQ:DELL) and Cisco Systems, Inc. (NASDAQ:CSCO) are winners in the server market
Interestingly, even with the global slowdown growth in the server industry, there were two giant technology companies, which posted strong year-over-year growth. They are Dell Inc. (NASDAQ:DELL) and Cisco Systems, Inc. (NASDAQ:CSCO). Dell’s server revenue came in at more than $2 billion, 10.1% higher than the server revenue of nearly $1.85 billion in the first quarter last year. Cisco experienced a whopping 34.9% year-over-year growth, reaching $450 million in sales. While Dell and Cisco Systems, Inc. (NASDAQ:CSCO) had 18.5% and 4.1%, respectively, of the global server market share, Hewlett-Packard Company (NYSE:HPQ) was still the biggest player in the server business with a 26.9% market share. In the first quarter 2013, Hewlett-Packard’s server sales declined by 14.8% to nearly $2.95 billion.
Both Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ), the two largest global PC makers, have been suffering from the sharp decline in PC global business. However, for Dell, its servers and networking segments have been growing quite well. In the past three years, Dell has managed to grow its servers and networking sales from $7.6 billion to $9.3 billion. Hewlett-Packard has not been performing as well as Dell Inc. (NASDAQ:DELL) in the server business. In 2012, its Industry Standard Servers business came in at $12.5 billion, equal to the 2010 revenue. In 2012, Cisco Systems, Inc. (NASDAQ:CSCO) generated most of its revenue, $14.5 billion, from switching business. The Data Center came in at only $1.3 billion in 2012, but it was Cisco’s fastest growing product/services segment. In the past three years, the Data Center has grown sales significantly, from only $196 million in 2010 to nearly $1.3 billion in 2012.
Dell is in the buyout war
Dell Inc. (NASDAQ:DELL) has been in the midst of the buyout war for a while, between founder Michael Dell/Silver Lake and Carl Icahn/Southeastern Asset Management. Michael Dell/Silver Lake gave an offer of $13.65 per share in cash for the company while Carl Icahn/Southeastern Asset Management proposed a “leveraged recapitalization” plan for the option to either receive $12 per share in cash or $12 in additional shares valued at around $1.65 per share. However, Dell’s board has rejected Icahn’s offer. On the other hand, Carl Icahn and Southeastern Asset Management are choosing potential candidates for the CEO seat if they are successful in the buyout war. According to Reuters, the potential candidates could be Cisco Systems, Inc. (NASDAQ:CSCO)’s director Michael Capellas, Oracle’s President Mark Hurd and Hewlett-Packard’s PC chief, Todd Bradley.
Hewlett-Packard with negative tangible book value
Hewlett-Packard has been in the process of restructuring itself after a bad acquisition. The Autonomy acquisition has wiped out as much as $8.8 billion of the company’s equity within just around two years. What makes me worry about Hewlett-Packard is the fact that even after its huge $8.8 write-down, Hewlett-Packard still has as much as $35 billion in goodwill and intangible assets, which are very vulnerable for further write-down in the future. With only $23.5 billion in equity, Hewlett-Packard had a negative tangible book value of $(11.5) billion.