Technology is Hot

Intel Corp. reported record revenue for the first quarter of 2011, exceeding Wall Street expectations. IBM Corp. also stated strong results for the first quarter of 2011, with solid growth across most of its businesses and product lines. Separately, Seagate Technology plc announced a definitive agreement to acquire Samsung Electronics Co. Ltd.'s hard disk drive (HDD) operations for $1.37 billion.

Focal Points:

• Intel announced record revenue of $2.6 billion for the first quarter of 2011. According to the vendor, this 25 percent year-over-year increase was due to double-digit annual revenue growth in every major product segment across all geographies. PC client group revenue amounted to $8.62 billion, up 17 percent compared to the first quarter 2010, while data center group revenue was $2.46 billion, up 32 percent, said Intel. Revenue from other Intel architecture rose 70 percent year-over-year to $1.15 billion, while revenue from the Atom microprocessor and chipset group increased 4 percent to $370 million, Intel added. The vendor also reported a net income for the quarter of $3.2 billion, up 34 percent compared to the same quarter last year. Earnings per share also set a record at 56 cents, a 37 percent increase over the same period in 2010. Additionally, Intel used its first-quarter announcement to state plans for an increase in capital expenditures (capex). In the vendor's January fourth-quarter and full-year financial statements, it raised its 2011 capex estimate to $9 billion. Intel now estimates that its 2011 capex will be in the $10.2 billion range, plus or minus $400 million.
• IBM reported that revenues for the first quarter of 2011 grew 7.7 percent year-over-year to $24.6 billion. Net income also rose 10.1 percent compared to the same period 2010 to $2.86 billion, and earnings per share increased 17 percent to $2.34. According to IBM, revenue from the Systems and Technology Group grew 19 percent year-over-year to $4 billion. The unit was led by System z mainframes, which saw a 41 percent year-over-year increase in sales. IBM added that revenue from the Software Group was $5.3 billion, up 6 percent from the first quarter of 2010, and revenue from Global Services also grew 6 percent to $14.6 billion. Global Technology Services accounted for $9.86 billion of the latter group's revenue, with Global Business Services accounting for $4.71 billion of that. IBM also announced that it saw double-digit growth in almost 40 growth market countries. Moreover, the combined revenue in Brazil, Russia, India, and China (the BRICs) was up 22 percent, with growth in each of the four countries, said the vendor.
• Seagate has entered into a definitive agreement to acquire Samsung's HDD operation for a half-cash half-stock deal worth $1.37 billion. Under the terms of the deal, Samsung will combine its HDD business into Seagate's HDD unit, as well as provide NAND flash memory for Seagate's solid-state drives (SSDs). At the same time, Samsung will take Seagate drives for its consumer, notebook, and PC products. Following the deal, Samsung will own nearly 10 percent of Seagate, awarding the company a seat on Seagate's board. According to the announcement, the two companies will also cross-license patents, and will co-develop enterprise storage gear. The combined entity will have around 40 percent of the worldwide HDD market, making it a formidable competitor to Western Digital Corp./Hitachi GST, which owns approximately 50 percent of the market share. The deal will also significantly expand Seagate's business into China and Southeast Asia.

Experton Group believes first quarter 2011 hardware sales confirm the global entry into the early phase of another long up-cycle in corporate acquisitions of hardware. From PCs, smartphones and tablets to servers and storage, companies are upgrading, expanding and transforming their use of technology, with the Asian and BRIC countries leading the way. 15 years ago there were 15 major disk drive companies; now there are three. The reduction in number of players normally results in less competition and higher prices but continued fierce competition and technology advances should keep prices trending lower. IT executives should expect aggressive jockeying for market share amongst the major players and should use it as an opportunity to negotiate for better terms (prices, products, service levels or services) as they transform and/or upgrade their client devices and data centers.