The terrain in the mainframe business is pretty well mapped out now that IBM has delivered its G5 series machines and Hitachi Data Systems has divulged information concerning its forthcoming Skyline II machines, which are due in the third quarter of next year and which will have about 20% to 25% more uniprocessor power than IBM’s follow-on G6 processors. Analysts at Morgan Stanley Dean Witter say that IBM is the undisputed winner in the battle over the mainframe market, but that it had better be careful not to kill Hitachi Data Systems and Amdahl if it hopes to protect its very lucrative S/390 software business. Hitachi and Amdahl, says Morgan Stanley, are not the enemies of the IBM mainframe business, but rather Big Unix is. Rather than gunning for deals at Hitachi and Amdahl accounts, Morgan Stanley says IBM should be trying to figure out ways to push its mainframe software into more accounts before these companies decide to throw all three of them out the door for mainframe-class Unix servers from Hewlett- Packard and Sun Microsystems.
By Timothy Prickett Morgan
Don’t misunderstand. Morgan Stanley isn’t saying that business isn’t good with the G5s. In fact, by all indications, business has rarely been better in recent years. One of IBM’s S/390 manufacturing partners, Solectron, which makes circuit cards for IBM mainframes and disk controllers, has posted sales 30% above forecast levels. This, says Morgan Stanley, indicates that IBM’s G5 series is doing better than either IBM or Solectron expected, although it adds that most of the cards that Solectron has built will go into machines that are sold during the last quarter of the year, not into next year. But Morgan Stanley nonetheless believes that there are other indications that the G5 generation and its follow-ons, the G6s due sometime next year, will enjoy healthy economic life. IBM is reportedly telling mainframe software vendors that it is forecasting 60% MIPS growth rates (whether this is for the near or long term, Morgan Stanley doesn’t say). IBM has also apparently sold out of mainframes for September and October, and customers are being told that current orders won’t ship until December. While this is impressive, it might be as much due to supply constraints as demand pull; and again, neither IBM nor Morgan Stanley are saying which it is, or both. Moreover, a larger number of mainframes than usual are set to come off lease during the next 18 to 24 months, and customers will presumably be anxious to renew their leases with newer equipment, even if IBM gives them the right deals. IBM is also reportedly giving a $50,000 bonus and huge software discounts to 9,672 sales reps who can get Skylines kicked out of an account for G5s, and apparently has had a few successes with this aggressive strategy.
Where the money is
Gaining back market share lost to Hitachi Data Systems is important, but Morgan Stanley reminds IBM that it doesn’t make nearly as much money in mainframe hardware as it does in mainframe software and any IBM strategy had better start focusing on this. There is a difference between threatening someone with a gun and pulling the trigger, says Thomas Kraemer in his latest analyst report on IBM. With the G5 processor, we think IBM is threatening Hitachi Data Systems, Fujitsu, Amdahl and other mainframe manufacturers. We do not think IBM should pull that trigger…because IBM actually needs [them]. IBM is winning back the mainframe, but we do not think that struggle is pivotal. We think IBM should focus on how to make the mainframe platform more competitive with Unix.
