The actions we are announcing today demonstrate IBM’s continuing resolve to deal aggressively with the difficult transition that is occurring in the computer industry, said IBM chairman John Akers as he announced the devastating new downsizing charges the company would be taking with this quarter’s figures: The result will be a stronger and more prosperous IBM. Well it may be, but it will be a very much smaller IBM than the one with which we are all familiar. The enormity of exactly what IBM was saying on Tuesday took a few hours to sink in, but the company was announcing nothing less than the death of the mainframe – and accelerating that process enormously. At the analysts’ briefing, Akers said that mainframes are still very important, but added that IBM will now focus more on services and software. A fundamental part of our discussions reflect the reality of the changing nature in this economic environment regarding mainframes. It is hard to credit exactly what IBM said on Tuesday, and what it didn’t say. It didn’t say that it was cutting costs in all parts of the business, and that there would be consolidation of facilities in various parts of the company, and go on to give vague and ambiguous answers when pressed to say just where the cuts would fall – and as we all know, IBM is a past master at that kind of dissimulation.
Pips squeak
No, it came right out and said the consolidations would come in mainframe, mainframe disk and mainframe chip plants. It then said that it would be cutting its $6,000m-plus research and development budget by $1,000m – a whopping 16% – next year, leaving little doubt in anyone’s mind that mainframe hardware and software research and development would bear the brunt of the cuts. It has to be recognised that its announcements were being made to a largely financial audience on Wall Street that had long been calling for just those kinds of cut. Many years ago, Denis Healey thrilled a Labour Party Conference in opposition by declaring that when Labour came to power and he was Chancellor of the Exchequer, he would squeeze the rich until the pips squeaked. When he duly became Chancellor, his job was made incomparably harder by the extent to which the people that he regarded as rich reorganised their affairs so that almost all the pips he wanted to squeak were safely out of his reach. In vain he protested that what he’d said shouldn’t have been taken seriously, that it was addressed purely to the Party Faithful, and wasn’t intended to be heard or taken on board by anyone else – even if the speech did play big both live and in recorded highlights on prime time television.
Unmistakable
The unmistakable message coming through from IBM’s statements is that the company recognises that the days of the mainframe are numbered. But by making its perception quite so clear, it was doing nothing less than delivering a self-fulfilling prophecy. It was as if Philips Electronics NV or Sony Corp had announced that they would phase out long-playing records in two years’ time at a time when they had warehouses stuffed with unsold record players in every country in the world. In vain will IBM argue that users are not sufficiently sophisticated to take on board what the company was saying: they are and they will. But even if they weren’t, does anyone imagine that every vendor dedicated to downsizing users from mainframes wasn’t listening, and is not even now spelling out exactly what IBM said and what it implied to all its biggest and best prospects in the IBM mainframe user base? Thousands of IBM mainframe users all over the world that had been intending to stick with System 390 for at least one or two more generations will now freeze all their plans completely while they have a complete and fundamental rethink of their entire corporate computing strategy – and the chances that they will now want to spend much of their data processing budget with IBM are painfully slim. If IBM foresaw a difficult 1993 before it made its catastrophic announcement, it has now pretty much guaranteed that if it thought 1
992 was rotten, it ain’t seen nothing yet. In one of the more charming asides, the wire services on Tuesday kept inserting, whenever they mentioned mainframes the mantra which account for 60% of IBM’s profits – what profits? The company hasn’t made any profits for two years, and now looks highly unlikely to make any next year. But profitable or not, they still make up about half of IBM’s volume, and a rapid falling away of that business must have a catastrophic effect on IBM’s cash flow. The impact of a widespread perception that the mainframe is yesterday’s obsolete technology makes Amdahl Corp’s plight look desperate, and means that Unisys Corp, which has finally succeeded in convincing its customers that the 2200s and the A series really will be around until the end of the decade, will have to start the uphill task of persuasion all over again.
Dissimulated
Useless to protest that if IBM had dissimulated about exactly where the cuts would fall, the press and Wall Street would have found out what was going on: there’s a world of difference between diffuse sighs and whispers from journalists and analysts that filter out over time: people believe what they want to believe and there are thousands of IBM mainframe customers that want to believe that the mainframe will be around for ever – or at least for their working life: once IBM spells out its direction, the last figleaf is stripped away from their credulity, and it becomes the height of irresponsibility for them not to establish a strategy for a mainframe-free world. That spells out the problem and its scale: what can IBM do to alleviate what has to be seen as a crisis of its own making? Reverse the cuts? It would lose its last shred of credibility, and they needed to be made anyway. Rail at a vicious world that punishes it for having been brutally honest with its customers, its employees and its business partners? That might make the company feel better, but it would do nothing to save the situation. No, the only thing it can do is to resign itself to another vast round of job cuts and closures next year and the year after, while it laboriously builds up its viable product lines to start filling the yawning hole in its balance sheet and business where the mainframe used to be.
