COM T. Bittman, G. Weiss, J. Enck, M. Chuba, J. Phelps

Transcription

1 T. Bittman, G. Weiss, J. Enck, M. Chuba, J. Phelps Research Note 1 April 2003 Commentary IBM Focuses on Its Server Portfolio to Grow Market Share IBM has sharpened its focus on its server efforts during the past two years. It is emphasizing the pseries and xseries for increasing market share, and the zseries and iseries for growing use within their installed bases. IBM has been more focused on its server efforts in the past two years. Previously, IBM was more concerned with server positioning issues among its four architectures. Now IBM has put clearer emphasis on the pseries and xseries for growth and market share. Although IBM has not stopped trying to sell the zseries or iseries to new customers, the bulk of investments in those architectures is aimed at increasing the use of those servers within its large and valuable installed bases through consolidation and new applications. Key Elements of IBM's Server Strategy Technology sharing is a critical element of IBM's server strategy. This has been especially true between the iseries and pseries for cost-savings, but it is also true among the various servers to drive high-level function, such as logical partitions (LPARs) and silicon technology, across the platforms. Linux remains an important element of IBM's server strategy (see "IBM's Linux Strategy: An Appraisal and Outlook"). However, IBM's goal is not to make Linux the dominant operating system, but to make Linux a competitive Intel server alternative to Windows. IBM's goal is heterogeneity and, without a competitor to Windows on Intel servers, the heterogeneity is much weaker. The Linux value proposition is strengthened by support of Linux on IBM's various hardware architectures. The zseries architecture, in particular, has leveraged the Linux strategy as a means of increasing consolidation on the zseries, and increasing the use of new applications on the zseries. Linux will become IBM's most important operating system for a growing trend in commoditized operating systems and servers led by grid computing technologies and blades. As distributed management software grows in capability, the role of Linux will grow in importance. Autonomic computing is the most important initiative for servers. Originally called "eliza," the leadership for this initiative has shifted to the Software Group (and Tivoli in particular). Also, the initiative has been given more attention by becoming a foundation for IBM's overall "On Demand" strategy. However, the server investments have not significantly changed. The focus of autonomic computing for servers continues to be improved self-management and improved distributed manageability (including a shared Gartner 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 hypervisor as a base and distributed workload management). It is significant that IBM's BladeCenter is marketed not only for the hardware, but primarily for the blade management software (IBM Director). In general, autonomic computing has shifted the attention of IBM's servers on manageability and shared management tools. Figure 1 IBM Server Revenue From 1998 to 2002 In Billions $ xseries pseries iseries zseries Source: Gartner Research (March 2003) zseries Although some still predict the imminent death of the mainframe, we believe that there are growing indicators of a continued investment in and resiliency of the IBM mainframe platform. Application portfolio, independent software vendor (ISV) enthusiasm and cost of software continue to be the major challenges faced by the mainframe, along with the concerns for the shrinking of the pool of people with mainframe training. The mainframe must also continue to fight the perception that it is obsolete. Counter to these challenges, IBM continues to enhance the technology and move the mainframe into new growth areas, rather than treating it as a "cash cow." There are valid concerns for some enterprises to examine the future of their IBM mainframe systems (application portfolio, software costs and staffing); however, the IBM mainframe will continue to offer significant value for many enterprises at least through 2013 (0.7 probability). In 2001, IBM stemmed a steady decline in mainframe hardware revenue with its first "up" year in almost 13 years. IBM was unable to build on that momentum in 2002 as mainframe hardware revenue declined by more than 10 percent year over year. Mainframe capacity shipments, which are measured in millions of instructions per second (MIPS), grew less than 10 percent year over year. The results were buoyed by IBM's push for Linux on the mainframe, as Linux MIPS shipments were up 45 percent year over year, and IBM claimed that 17 percent of its mainframe revenue was generated from Linux. Product highlights include the launch of the z800, a 64-bit midsize counterpart to the z900 that generated nearly 1,000 unit shipments in 2002, and the z series turbo models, which boosted high-end performance by 18 percent to 20 percent. IBM will announce a new processor generation, Generation 8 (G8; code-named T-Rex), with 35 percent to 50 percent greater uniprocessor performance than the current version by 2Q03 (0.8 probability). Most 1 April

3 significantly, IBM is investing in the architecture to break the historical limitations of MVS of 16 processors per image. We expect that IBM will provide a road map that will eventually lead to as many as 64 processors in a z/architecture environment. The zseries shipments for Linux environments will continue to be a significant part of IBM's marketing thrust, and we expect its contribution to grow from 17 percent to 20 percent. Although IBM's greatest inroads with Linux will be within its installed base as a consolidation vehicle for infrastructure/web serving and mail, IBM will pick up some Linux on mainframe business in the mission-critical database application market segments. Hardware price/performance improvements will remain modest. We expect approximately 12 percent to 15 percent, rather than the 30 percent to 35 percent improvements seen between 1995 and 2000, when plug-compatible competitors were active in the market. Rich functionality High-margin product Strength in largest enterprises Continued technology enhancements ISV portfolio Cost of software, especially the operating system The aging of the support staff Growing competition Executive perception iseries The iseries faces ever-increasing market challenges. Although IBM continues to invest in the iseries, and even though the iseries technology remains stronger than Unix- and Windows-based competition, the iseries marketing is less aggressive than the pseries and xseries marketing. The iseries installed base remains loyal and continues to spend on the platform and the infrastructure around the platform, but new business has declined from approximately 20 percent of the iseries hardware revenue in 1997 (roughly $900 million) to 9 percent of the iseries hardware revenue in 2002 (less than $170 million). This decline is because of the rapid encroachment of Windows-based Intel servers into back-office roles in the traditional entry point to the iseries market small and midsize businesses (SMBs). The trend toward consolidation has been a huge benefit to the iseries business, as customers consolidate older systems, and sometimes new workloads, to the iseries. The number of active systems has been declining because of the reduction in volume at the low end and consolidation to larger systems at the high end. In January, IBM announced significant price reductions in the iseries hardware, aimed at increasing the viability of traditional applications (and promoting the "Web-facing" capabilities of these applications), the loyalty (and spending) of the installed base and IBM's success with new customers. IBM is investing in 2003 to attract new customers, improve channels and strengthen ISV loyalty will be a critical year. We believe that IBM will be successful in increasing the iseries' usage by its installed base, but IBM will continue to struggle to attract new business. The market perception hurdle with the iseries vs. Unix and Windows is likely too difficult to overcome. Instead, we believe that the iseries will remain viable and 1 April

4 strategic to IBM because of the value of the installed base including the majority of IBM's SMB accounts, which is a prime target for IBM software sales as IBM attempts to expand its software base into the SMB market. Although we evaluate the iseries business as a "caution," that reflects our belief that the business has more long-term downside potential than growth potential. However, even in a slowly declining business, it is very profitable for IBM, which will continue to invest in the iseries for many years. Large, loyal installed base Integration, reliability Consolidation Investment protection Wide geographic coverage Marketing IBM server strategy ISV enthusiasm Skills generation, retention Windows/Intel taking away entry business pseries In the early 1990s, IBM made a costly miscalculation about the importance of the Unix market and severely underinvested in the Power architecture. It wasn't until it was almost too late, when Sun Microsystems had already cornered a large part of the telecom and financial services market, that IBM woke up and placed AIX and the Power architecture as a high-priority commitment to regain lost market share. By 2002, IBM demonstrated that the high-end pseries 690 ("Regatta") could deliver higher performance in transaction processing at lower CPU configurations than Sun and Hewlett-Packard (HP). However, from the years of neglected investment, IBM still was playing catch-up to Sun (E15K) and HP (Superdome) in partitioning and dynamic reconfiguration (despite its technical knowledge of LPARs in the zseries). In 2002, IBM added important pseries family members in the entry and midrange points to complement the high-end p690 and refresh the entire pseries with Power 4 (and above) generation microprocessors. At the same time, IBM rolled out the first AIX 5.1 version and the first instantiation of its hypervisor for dynamic logical partitions, which is a different technology than what IBM uses on the zseries. However, the full functional capability of workload management will not roll out before AIX 5.2 and a redesign of the Regatta backplane. However, Sun, Fujitsu and HP already ship systems with at least double the number of processors of the p690, and each have either hardware- or software-based partitioning. With intense Unix competition, all of the hardware vendors have been rolling out advanced peeks at their road maps, providing levels of detail down to chip geometries, frequency ranges with the inclusion of multiple cores per die and chip multithreading. IBM has been on a campaign to reinforce its commitment to the Power architecture road map through Power 5 and Power 6 generations, which is sufficient to take IBM to the end of the decade on current designs. 1 April

5 IBM is clearly betting that the next generation of 64-way pseries designs, combined with dual cores on a chip and multithreading, will improve overall scaling severalfold despite the emerging competition of Intel with faster Itanium processors and Sun's chip multithreading. In terms of overall unit volumes and shipped revenue, IBM will challenge Sun's leadership but not surpass it. We believe that this has more to do with the dominance of Solaris among ISVs and the strength Sun maintains in volume entry systems. Nevertheless, IBM appears in about 90 percent of the open Unix evaluations and through sheer sales force aggressiveness will grow its Unix share in the data centers faster than the competition where IBM's name still ranks with mainframe reliability, availability and serviceability capability. Market share for IBM's AIX pseries will approach but not pass Solaris, the market leader, through 2007 (0.7 probability). Reinvigorated product line, technology Aggressive sales force Large account relationships Renewed ISV investment Multiple Unix/Linux strategies First-generation workload management xseries In 2002, IBM's xseries business has been growing steadily in terms of revenue and market share (see "IBM's xseries: Innovation Is the Key"). This is mainly led by IBM's high-end Intel server offering. In March 2002, IBM released its x440 Intel server, which supports a four-processor building-block approach to building up to 16-processor systems, using NUMA technology, and supporting hardware partitioning. Full exploitation of nonuniform memory access (NUMA) requires operating-system support, which means that the x440 is relying on Windows Server 2003 before it can perform well in larger configurations. Servers from Dell Computer and HP do not support that kind of stepwise expandability, nor do they support partitioning (in 32-bit Intel servers). Furthermore, the x440's price is much lower than a comparable Unisys ES7000 (although not quite as performance-efficient), and the Unisys ES7000 does not use the same building-block approach to scalability. IBM will maintain the No. 3 position in the global Intel Architecture server market (behind HP and Dell) through 2008 (0.8 probability). IBM installed base Sales aggressiveness Uncertainty in the HP installed base High-end products, partitions 1 April

6 Systems management, services Growing direct channel Microsoft relationship reality and perception Providing factory value-add without eroding profits Avoiding the mantle of "proprietary technology" Bottom Line: Revenue from IBM's zseries and iseries (in particular) will gradually decline through Because of its unique capabilities for consolidation and high-end processing, the zseries will remain viable and strategic for enterprises and IBM. The iseries will remain viable for current users, but enterprises must be cautious about skills availability and independent software vendor support over time, focusing investments on ISVs with significant iseries business, as well as significant sources of revenue from other platforms. On the other hand, IBM's overall server market share will remain stable (at roughly 35 percent), because of increasing revenue for the xseries (growing at better than 8 percent per year), and increasing revenue (growing at better than 12 percent per year) and market share for the pseries. 1 April