With IBM Corp and Hitachi Data Systems slugging it out in the mainframe market, the obvious question is how well will Skyline II, or Super Skyline as the company’s internal documents call it, do against IBM’s G5 and forthcoming G6 processors. IBM may have achieved 160 competitive winbacks with its G5s, as analysts at Merrill Lynch believe, and they may even include a few Hitachi Skyline sites, but most of the hundreds of Skyline machines sitting out there in the world will, for the next 18 months or so, probably stay put. To have sold over 400 big mainframes is a considerable feat and has given Hitachi Data Systems the largest market share that it has ever held. As of July 1998, the latest market figures that are available and which do not take into account the effect of the IBM G5 announcements on Hitachi’s ongoing sales efforts, Hitachi had 410 machines installed in the world, which accounted for 2,311 engines and 250,901 aggregate MIPS.
By Timothy Prickett Morgan
A year ago, Hitachi had 250 Skylines installed with 1,300 engines and about 135,000 total MIPS, so growth had not been slowing by all that much as IBM started talking up G5 mainframes and pushing its much less capable G4 machines in the spring and early summer. The bulk of those Skylines are in the United States — 235 of them — while about 147 of them are in Europe, seven are in Latin America, four are in Africa and a measly 17 are in the Asia/Pacific region. (Hitachi Data System’s parent company, Hitachi Ltd, certainly sells more mainframes in Japan than this, but they don’t bear the Skyline label and they don’t run IBM’s MVS and OS/390 operating systems, so they don’t count.)
Who buys?
Who bought all of these machines? Big mainframe shops like banks, brokerages and insurance companies, of course. Hitachi Data Systems says the top 4% of mainframe sites in the world (ranked by size in terms of aggregate MIPS) accounted for 40% of total MIPS purchases in 1997. The middle five to 20% of the base comprised another 40% of MIPS consumption. The remaining 80% of the mainframe base ate up only 20% of the aggregate MIPS sold during the year. This pattern, at least for the last few years, has been fairly stable. What has changed, of course, is Hitachi’s share of that market. Hitachi says that in that top tier (the top 4% by size), Skyline machines accounted for 41% of MIPS and Pilot, Hitachi’s CMOS mainframes that are clones of IBM’s 9672s and actually use IBM’s micro390 CMOS chips, comprised another 11% of MIPS, giving Hitachi Data Systems a whopping 52% of the most lucrative part of the mainframe market. While not being specific about the other tiers, Hitachi says that it had 4% of the worldwide S/390 MIPS shipments with Pilots and another 17% with Skyline, giving it a 21% market share by MIPS shipments and an even greater share by revenue since its Skyline machines could command a premium so long as IBM was peddling G3 and G4 machines that couldn’t touch Skyline machines in terms of raw performance.
Getting to Skyline II
Of course, now that G5 is out there and we are a year away from Skyline II, now is the time for Hitachi Data Systems to take it on the chin. If the company saved a big portion of the estimated $2.5bn it made on Skyline machines over the years, it will be able to ride out the sales slump to get to Skyline II late next year. But by then, say industry experts, prices could drop as low as $2,500 per MIPS, depending on how aggressive Amdahl Corp, Hitachi and IBM fight for business. At those prices, Hitachi is going to have to sell twice as many MIPS during the Skyline II generation (in a market where IBM’s G6 machines have 80% of the power of its bipolar Skyline engines rather than a fraction of it as in the initial Skyline market) to bring in half as much revenue as it did during the Skyline generation. Hitachi Data Systems will get upgrades from existing customers, and depending on the availability of IBM G5 and G6 machines, it will even get some new orders. But all the fruit is definitely gone on the low branches, and the only weapon that Hitachi Data Systems seems to have is to start a price war with a very reluctant IBM in its mainframe market. It might make more sense to get 10% of a bigger market propped up by higher prices than have 20% of a market much diminished by a price war (Compaq killed Apple this way), and only time will tell what Hitachi Data Systems will do.
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