IBM takes on Sun's server dominance
Published: 20 Mar 2001 09:43 GMT
More than two years ago, IBM realised it had fallen on its face in the very market that brought it to power: servers, the powerful computers that lie at the heart of corporate networks.
Two major competitors afflicted the computing colossus: Sun Microsystems and IBM itself. While Sun captured the energy of the Internet, IBM salespeople fought themselves instead of their competitors.
IBM is working to put that in the past, however. The company's four server lines have been rolled into one brand name, eServer. Top server executives are compensated based on the success of all servers, not just their individual product lines.
IBM has appointed "eServer managers" for major customers to make sure one IBM server line doesn't compete against another. Research and development is spreading technology from high-end product lines to lesser siblings.
In other words, Big Blue thinks its server business is back on its feet.
"I am convinced we are on the right strategy to win the most important battle," Bill Zeitler, senior vice president in charge of IBM's server group, said in an interview.
Recent figures from IDC provide modest reinforcement for IBM's optimism. Though its server sales for all of 2000 grew 4 percent, to $13.6bn -- three points slower than the rest of the market -- a strong fourth quarter showed 31 percent growth to $4.5bn, compared with 14 percent growth for the market overall.
"All the moves they've made are pretty darned positive," said Illuminata analyst Jonathan Eunice.
But the question now is not whether IBM's products are good -- it's whether IBM will be less damaged than competitors by the economic slowdown.
Servers don't look like the salvation they once did from the fickle, low-margin PC business. With dot-com companies collapsing and corporations delaying computing projects, IBM no longer looks as insulated from economic troubles that have afflicted Compaq and others with a heavier dependence on PCs.
"We have spoken with the chief information officers at a number of large financial services corporations, and they indicated they have started to slow their purchases of mainframe [computing power]," Merrill Lynch analyst Tom Kraemer said in a report on Friday. That news could be a problem for those hoping mainframes would be a bright spot in the current environment, he said.
One element of today's ugly market could work to the advantage of IBM and Hewlett-Packard over less-established Sun, said Gartner analyst Tom Henkel.
"I'm sure as pain goes, Sun is probably feeling a little more pain than HP and IBM," Henkel said. "For a long time, the dot-com revenue was the turbocharger that kept pushing Sun to outstanding quarters." Dot-com companies often were "blank slates" starting their computing systems from scratch, but HP and IBM have an advantage when adding to traditional companies' mix of numerous server types.
In the big picture, IBM has made major progress, Henkel said. "IBM is much more frequently on client short lists," Henkel said. "Two years ago, we saw HP and Sun on 80 percent of calls, with IBM on 50 percent. HP and IBM have virtually swapped places. More often than not, we're seeing an IBM vs Sun scenario."
Now IBM must convert internal changes to market success while Sun is distracted with overhauling its servers with the new UltraSparc III chip, Henkel said.
"They've probably got 12 to 18 months to really score some big wins," he said. "Certainly between now and the end of the calendar year is the strongest opportunity, given the delays in the UltraSparc III and the difficulties Sun has had with UltraSparc II."
But in the long run, IBM believes servers, and therefore IBM, will prevail. "We're coming into the golden age of servers," Zeitler said.
IBM was not always this cheery. "In 1997, they had a really dismal product line," Illuminata's Eunice said. Internal competition also made IBM an easy target for Sun. "It's like a Third World nation where one group of the army turns its guns on another group of the army and tries to execute a coup."
Zeitler acknowledged that IBM's strategy had been disorganised. "We had these products selling against each other," he said -- a telling admission given the company's history of downplaying the issue. And worse, "It looked like Sun really had its act together. We didn't have a strategy to participate in this e-business thing."
For Rod Adkins, the low point was October 1998, when he took his current job at the helm of IBM's pSeries Unix server division. "We just weren't engaged in the marketplace like Sun. Sun was the undisputed champion," he said.
Naturally, Sun agrees. "We are hitting them where it hurts. We are in the depths of the data centre," said Shahin Khan, head of server marketing for Sun. "They are now putting their crosshairs on us."
Khan acknowledged, though, that IBM has more resources to take on Sun than vice versa. "I can't outspend them. I can't out-advertise them. I can't out-people them," he said. But he contended that Sun's products are years ahead of IBM's, and IBM still is overly attached to the flagging mainframe business.
"I think IBM is a mainframe company and always will be a mainframe company," Khan said. "I think Sun is a scalable Internet infrastructure company, and that's where the future is going."
Maybe so. But mainframes, while admittedly a declining business, still are lucrative, Eunice said.
It is better for IBM to sell a zSeries (mainframe) than a lower-end IBM server, Eunice said. Mainframes have higher profit margins, lock customers in for future purchases more effectively, and generate more continuing service revenue, he said.
IBM indeed is proud of its mainframe technology. And even Khan admits that Sun gets high-end Unix server technology ideas from mainframes.
"Partitioning, which lets customers divide servers such as Sun's top-end E10000 machine into several independent computers, is a standard mainframe feature. But as Khan likes to ask, "Why should it be that it's [Sun's] Solaris that offers partitioning and not IBM's version of Unix?"
Sun was there first with Unix servers that could be partitioned, but IBM's Regatta Unix server, due this fall, likely will outpace Sun's partitioning technology, Eunice said. Where the smallest partitions allowed on Sun machines are four-processor boards, Regatta will feature mainframe-like abilities to have a partition running on a single processor or even a fraction of a processor, he said.
"It's not like a mainframe, it is a mainframe," Eunice said. "Five years ago, that would have been death, but today I don't think you have to apologise for using mainframe components."
IBM is bringing chip packaging technology as well as partitioning from mainframes to Unix servers, Zeitler said.
Multichip modules, the grouping of several chips within a single package that first was used by IBM in its mainframes in 1998, also will arrive with Regatta, Eunice said. "Multichip modules are serious big-iron technology," Eunice said. "There is a genuineness to the cross-product line sharing that is coming about... It makes me bullish on their ability not to spend all their time bickering with each other."
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