Every year in the fourth quarter, IBM assembles its Systems & Technology Group (STG – the hardware guys) executives for discussions with the analyst community to review results and discuss the year ahead. STG’s Senior VP Rod Adkins teed up this year’s meeting with a reminder that STG and Software Group (SWG) both now report to Steve Mills, SVP and Group Executive – Software & Systems. This change naturally suggests the possibilities for increased synergies between the two parts of IBM, and although much collaboration has been in place over the years, IBM’s attention to leveraging the opportunity has clearly come into sharper focus. The interaction was a recurrent theme.
Adkins’ messages focused on gaining market momentum with increased offering differentiation, targeting new workloads and clients, and driving sales and marketing execution. He made a strong case for having done well on all counts. After a difficult 2009, STG has just turned in its best Q3 performance in 6 years following gains in the prior two, and is expecting continued success to round out the year. Adkins intends to grow from 2009’s $1.3B in pre-tax income to $2B in 2015.
Every IBM hardware platform – z, POWER, x and storage – has been refreshed in 2010, with an eye to driving the differentiation Adkins spoke of. “Smart Analytics workload revenue” through September is 4x its first year total, he said, with POWER solutions and associated storage leading the way. For this observer, though, IBM doesn’t have nearly the mindshare it should in the analytic platform and data warehouse markets. It will need to step up the message volume to break out of its existing customer base and drive new business momentum. Attractive as they sound, IBM’s incremental moves to drive ecosystem performance need to be matched by a commitment to raise customer awareness.
IBM’s platform portfolio permits multiple paths to market, and some of the successes are striking. Though a few observers assert reductions in the numbers of mainframe customers, IBM focuses on its new ones: 37 new System z clients this year through September. And the transformation of the mainframe into what IBM calls “the industry’s first multi-architecture platform” could change the perception of the mainframe substantially. IBM’s zEnterprise can have POWER and x blades plugged right in, to run the workloads they are best suited or already being used for, to powerful effect. Has that message been heard in the market? Not in my opinion – again, there is a shortage of product messaging to supplement the admittedly effective Smarter Planet corporate story.
IBM boasts 4500 competitive displacements since 2006, when it began its Migration Factory initiative. On the high end, the news continues to be good: 532 wins from Oracle/Sun and 481 from HP so far this year. POWER systems continue to be a bright spot, with 800 migrations to it through September 2010, already 200 ahead of the 2009 total. On the low end, work has been done developing differentiated x platforms, and with improved revenue results in every quarter, that story seems to be taking hold as well, though it doesn’t get the laser view of wins that the lower volume, higher-priced platforms can.
IBM is using its weight as a global organization effectively in new markets: 29% of STG revenue comes from growth markets and in particular, the BRIC countries (Brazil, Russia, India and China) contribute 14% (they were up 27% year over year.) Adkins detailed the opportunity IBM sees: $650B in its key thrusts at growth markets, analytics, cloud and Smarter Planet. He concluded with a look at new growth areas like data center networking and virtualization and a discussion of go-to-market initiatives such as continuing expansion of the partner ecosystem.
Steve Mills showed his customary command of his topics. He began with a focus on workload optimized systems and observed that after 37 years at IBM, “I manage 35,000 programmers and I know what they want: ‘my own machine.'” His favorite analogy, the golf clubs that permit golfers to use the right hardware for the problem at hand, led to the observation that the extreme challenges in fabrication today demand that systems design be tightly coupled based on users’ requirements.
Mills customarily focuses on the economic issues, and this presentation was no exception. He reminded his audience that labor and energy costs are bigger drivers than the machines themselves and that the billions of programs running in the world today are priceless, irreplaceable assets. He echoed Adkins’ mention of the capability to put x and POWER blades in zEnterprise with common console and workload management, noting that this supports “multi-tier loads. This compresses the environment, and delivers higher value,” he asserted.
Mills spent a good deal of time on pointing out the interconnectedness of the whole computing stack, from chip to programmer. He noted compiler investment as a key to exploiting hardware advances and the synergy implicit in having the software team and the hardware team defining requirements together. “I need the system to do the parallelism for me, not the programmer – all the way down to compiler level,” he noted. He also honed in on the appliance message as an almost inevitable result of effective software-hardware design integration; if a specific workload or function is the object of a design, the result is quite appliance-like. He cited IBM’s DataPower boxes as an example.
Still, workload-optimized systems are not all appliances. A rich system designed for many uses, however similar, like the Smart Analytic Systems, take a lot of work – they are configurable, but sophisticated artifacts created in house take time. He doesn’t mind the Oracle comparisons, though: “It takes 4-6 weeks to install Exadata. It generates lots of heat – you have to reroute your air conditioning.” He’s confident that IBM will continue to succeed in the face of the new Oracle hardware-plus-software organization, not least because of its ability to offer both configurability and appliance forms. Netezza, the new acquisition, is not designed for high degrees of configurability, but for immediate results. One can see the nascent positioning emerging. Mills replied to my Netezza question with the revelation that IBM found only a 5% overlap with existing Netezza purchasers – “We see it as a different use case. They broke the code on the data mart play,” he said.
Feistiness regarding Oracle is nothing new for Mills, and he was in fine form, pointing out the success IBM is achieving, after all, “100% of the DB2 installed base has resulted from competitive wins since 1993 – mostly from Oracle.” And “We all know that SPARC is dead. It can’t keep up” with the fabrication challenges IBM has thrown down. IBM continues to allow configurability across various parts of the stack, because “I’ve never met a customer that was interested in giving a vendor pricing power.” And that posture plays well to the proliferation of data outside IBM’s DBMSs, competitor-owned or not: “Our strategy for the last 15 years has been a federated one; people keep much of their data outside DBMSs. Our message is not to worship at the temple of [Oracle or anything else.]”
Disclosures: IBM and Oracle are clients of IT Market Strategy.