Public cloud providers are altering the server business.
Cloud systems cut costs in part by using general purpose computers rather than specialized high-end servers. A decade ago Google (NASDAQ:GOOG) pioneered this trend, and it's now baked into the market, with Google itself becoming one of the eight-largest server producers, according to Bryant.
In 2008 HP (NYSE:HPQ), Dell (NASDAQ:DELL) and IBM (NYSE:IBM) together represented 75% of Intel's server chip business, which is its chief cash cow. Now, Bryant says, 8 companies make up that 75%, and at least one (presumably Google) isn't even a server company - they're just building servers for themselves.
What this makes obvious is that Dell and HP are using large chunks of their server market share, and that they're failing to provide the public cloud providers what they need. Chinese producers are picking up the slack.
Bryant didn't list her list's newcomers, but they appear to include Chinese-based Original Design Manufacturers, or ODMs, including Quanta Computer, SuperMicro (NASDAQ:SMCI), and a unit of Wistron called Wiwynn.
A quick look at stock charts tells the tale. SMCI is up more than 50% over the last five years, while HPQ and DELL are down over 60% each. IBM, meanwhile, is up over 75%.
The U.S. "giants" are trying to counter by turning into cloud suppliers themselves, and by building their own clouds, but the change in purchasing blows huge holes in all their balance sheets. IBM is diversified enough to handle the blow, but Dell and HP may not be.
For investors in HP and Dell this is a cruel blow. Servers represent a big portion of their profits, and the money they need to invest in order to maintain competitiveness in other areas.
Disclosure: I am long GOOG, INTC, IBM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.