The top ten IT companies include only three that are server hardware companies; IBM, HP and Dell. By value they are 6th 7th and 10th on “the leader board” (see the Goopple article). That gives you some indication of how times have changed. Go back to 1980 and the top IT vendors were all mainframe vendors with IBM having about 50 percent of the market and thus worth as much as the rest put together.

If you wanted, you could argue that Google is a hardware company, because it makes all its own hardware, including switches, but it is not a server vendor.

1. IBM to remain the dominant Server Vendor

In the server market IBM and HP are dominant, and have been for some time, with IBM having the edge over HP. There’s nothing to indicate likely change at the top here. IBM has become more successful in this market in the past year due to a number of factors (see Ten Reasons Why IBM Is Alive and Kicking for details). It has leading blade technology, the mainframe is healthy and the pSeries is “kickin’ ass”. Consequently it will probably edge further ahead in the server market in the coming year. This notwithstanding my view that HP CEO, Mark Hurd, is doing a “Lou Gerstner” at HP. I expect HP to become a much more aggressive competitor in time, as it already has in the PC market. However, it takes a while to turn a ship that size around.

I’ve not failed to notice that Sun Microsystems is back from the dead. It pushed Dell into 4th position in the server market some time ago. Jonathan Schwartz (Sun CEO) deserves credit for this. While it’s true that much of Sun’s current portfolio stems from investments that Scott McNealy orchestrated, Jonathan “gets” the server market. Scott believed that “software was a feature that sold the iron” (and at one time it was), but not since 19-whenever-dot-com. Jonathan gets that, which is one reason why Sun is showing profit and growth for the first time since 19-whenever-dot-com. Nevertheless, Sun is still a work in progress.

2. The Server Market is becoming, will become, a Management Software Driven Market

What we are witnessing here is differentiation by software. HP, IBM and Sun can all add considerable software value to the iron. Dell cannot. Dell is geared up to be a commodity manufacturer and thus it needs software partners – right now it has Oracle, VMWare and Citrix who can ease its commodity status. Fine, but they are all happy to partner with anyone.

It just isn’t about the cost of the iron anymore and IT users have ceased to buy hardware on a whim – like they did in 19-whenever-dot-com. They know that the big costs arise from Data Center management; managing the iron and managing the software that controls the iron and managing the applications that run on the software that controls the iron and supporting it all.

Virtualization and the management of virtualization is now a big part of the game. You can look forward to client virtualization becoming a big growth area in 2008 and sever virtualization will continue to grow wildly. The laurels will go to whoever can manage the virtualization well. It may be IBM or HP or Sun, but it won’t be Dell.

3. EMC to join the Leader Board in 2008

EMC is the 11th largest IT vendor, worth $16 billion less than Dell. It would thus seem unlikely that EMC would rise in market value enough for it to become one of the top 10 IT companies this year. Nevertheless, I think it will. This company seems to be prospering in most of its lines of business, including storage of course, and it has a wonderful asset in VMWare. In my view it is undervalued (see The EMC Paradox).

Note: There are 7 forecast postings for 2008. The others are:
Forecasts for 2008: #1 Chips & Virtualization
Forecasts for 2008: #3 The PC Market
Forecasts for 2008: #4 Google and the Cloud
Forecasts for 2008: #5 Communications Convergence
Forecasts for 2008: #6 The Application Layer
Forecasts for 2008: #7 Security