IBM (
IBM
) barely edged HP (
HPQ
) in terms of 2010 worldwide server market share, according to data
compile by IDC. For the full year 2010, IBM recorded a 31.9% share
while HP came in at 31.8%. Other big players in the server
market - Dell (
DELL
), Oracle (
ORCL
) and Fujitsu (
FJTSF
) - placed 3rd, 4th and 5th respectively.
Since HP and IBM are now pitching themselves as the leaders of
the server market to boost sales, we became interested in comparing
what the server business is worth to each firm, and what impact a
gain in market share could have on their stock values.
Servers (including both industry servers and high-end systems)
represent more than 10% of
our $55.49 price estimate for HP stock
. Comparatively, they make up only 3% of
our $185 price estimate for IBM stock
.
HP Heavily Reliant on Hardware while Software and
Services Drive IBM
As illustrated in the chart above, we estimate that the hardware
business (including printers, PCs, servers and storage) contributes
more than 50% of HP's equity value. On the other hand, HP services
generate about 38% of the company's value, indicating HP is still
primarily a hardware vendor.
Comparatively, IBM (HP's prime competitor in the server market)
derives the bulk of its value from software and services, while
hardware (including servers, storage and others) makes up merely 5%
of its value.
Potential Upside from a Gain in Server Market
Share
See our full analysis and $55.49 price estimate
for HP
While HP could see notable stock value upside from a higher
server market share, IBM's upside from a similar gain is marginal
at best. This is because hardware constitutes a relatively smaller
portion of our price estimate for IBM, making its stock value much
less sensitive to changes in server forecasts. We currently
forecast that HP's server shipments will grow at a gradual 2.5%
annually, reaching 3.32 million units by the end of our forecast
period. However, a faster growth of 10% from an increase in HP's
server market share could result in 6% upside to our
$55.49 price estimate for HP's stock
.
Drag the trend line in the interactive chart above to see the
impact of various server shipment scenarios on HP's stock
value.