Dell Doing Better Than Most In Server Market: Goldman

By Mani
Updated on

Goldman Sachs Group, Inc. (NYSE:GS) forecasts a revenue decline of 6.4 percent during 2013 and 1.7 percent decline in 2014 for the server market, amid disappointing sales and pricing pressure.

Dell Doing Better Than Most In Server Market: Goldman

In its research report on the server market update, Goldman Sachs Group, Inc. (NYSE:GS) observes the data released by IDC for the first quarter of 2013 falling below the investment bank’s estimates, thanks to intensifying pricing pressure.

The research report also observes that the top-tier OEMs continue to lose market share to white-box vendors. The report predicts this trend to continue in the future, with forces of commoditization persisting across the x 86 server markets.

Goldman Sachs’ Analysis For Dell

Goldman Sachs Group, Inc. analysts however feel Dell Inc. (NASDAQ:DELL) appears to have most successfully responded to the white-box challenge so far. This is primarily due to Dell Inc. (NASDAQ:DELL) aggressively responding to price competition, aided by its earlier efforts in hyperscale server market.

Goldman Sachs Group, Inc.’s analysts observe that the fall in revenue is quite evident in the UNIX market where the revenue and units for the first quarter for UNIX servers fell by over 30 percent, while the industry revenue fell by 7.7 percent.

Revenue from x86 servers also declined by1.7 percent. However, the top-tier OEM’s posted above-market ASP performance.

Goldman Sachs Group, Inc. (NYSE:GS) analysts find some bright spot through Linux server growth, though their sales were below the analysts’ forecasts.

Bill Shope and team expect the server spending to remain constrained, thanks to increasing pressure from the white-box vendors. The analysts thus retained their sell-rating on Hewlett-Packard Company (NYSE:HPQ) and QLogic Corporation (NASDAQ:QLGC).

The analysts consider QLogic Corporation (NASDAQ:QLGC)’s core Fibre Channel business facing headwinds from the consistent gains posted by white-box vendors. On the other hand, Hewlett-Packard Company (NYSE:HPQ)’s server business has to confront additional risk from the pricing pressure. Thus the analysts justify their retaining sell rating on QLogic and HP.

Goldman Sachs Group, Inc’s analysts however retain their buy rating on IBM, as its hardware profit represents only about 7 percent of its 2012 pretax profit.

The analysts however feel EMC as the top pick in the enterprise market with a buy rating.

From an overall server market perspective, Bill Shope and team observe that the first quarter of 2013 saw revenue share losses from Hewlett-Packard Company (NYSE:HPQ), International Business Machines Corp. (NYSE:IBM), Oracle Corporation (NASDAQ:ORCL).

However with 18.5 percent market’s revenues and 27.3 percent of the overall market’s units, Dell Inc. (NASDAQ:DELL) gained 300 bps year-on-year in terms of revenue, while Cisco Systems, Inc. (NASDAQ:CSCO) gained 130 bps.

The analysts however have not assigned any rating on Dell Inc. (NASDAQ:DELL).

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