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  1. Technology
August 20, 1998


By CBR Staff Writer

By Timothy Prickett Morgan

Big Blue held a conference call for its US-based S/390 resellers a few days ago to give them the low-down on where the mainframe business is at. The meeting was secret, of course, since IBM was speaking bluntly to its business partners about where the mainframe business has been, where it is at and where it is going. We’ve been hearing secondhand what IBM said to resellers, which sheds some light on IBM’s triumphs and tribulations among its flagship mainframe customers. First, IBM talked about pricing and MIPS shipment trends in the US market. Between 1989 and 1994, which represent the golden and dismal years of the mainframe market, IBM sold on average of 100,000 MIPS of S/390 processing capacity a year at an average of $33,000 per MIPS. During the early 1990s, when IBM’s list prices were as high as $100,000 per MIPS, street prices were considerably higher, but we suspect MIPS shipments were lower because the mainframe market is, as IBM has figured out all too late, an elastic one. it is safe to say that IBM sold about $3.3bn in big iron each year, more or less. By 1995, IBM was still shipping 100,000 MIPS a year, but at $21,000 per MIPS. In 1996, MIPS shipments increased by 50% (thanks to the increasing acceptance of the second generation of 9672 CMOS mainframes, but also to increased sales of 9021 bipolar mainframes to customers who could not easily switch their workloads to less powerful CMOS mainframes). By 1997, IBM had sold 200,000 MIPS – a 25% increase compared to 1996’s 50% – and prices had dropped to $8,300 per MIPS. That comes to a mere $1.6bn, half of the sales IBM got during its heyday at the end of the 1980s. Resellers say that IBM will be lucky this year to get $4,500 per MIPS for low-end Multiprise systems and to get $5,500 per MIPS for 9672 G4 and G5 machines, and that at best it will sell 250,000 MIPS in the US market. That’s $1.4bn, of which a infinitesimally small slice is Multiprise machines.

Half as many

How small? According to S/390 resellers, IBM’s plan was to sell somewhere between 650 and 700 Multiprise engines in 1998, which comes to between 75 and 80 systems because some Multiprise customers buy SMP configurations. IBM wasn’t specific about how bad the first half of 1998 was, but it did say that for the third quarter it would be lucky to sell half as many as it had expected. If this is correct, IBM will be only sell somewhere between $15m and $20m of Multiprise boxes in the US, about three- quarters of which go through the recently established S/390 business partner channel. Obviously, this is not a lot of money, and IBM and its partners are concerned that the thousands of customers with 4381s, 9370s 9221s and other vintage S/370 gear aren’t moving forward even as IBM has slashed hardware and systems software prices with the Multiprise machines. It is not a coincidence that third party equipment peddlers like Comdisco have been shut off from the Multiprise market by IBM’s territorial business practices and therefore the market hasn’t taken off. IBM does not sell Multiprise systems, it only leases them. This, of course, is in direct violation of the 1956 Consent Decree that IBM signed to get out of an antitrust lawsuit brought against it by the US Department of Justice in 1952. The Decree has been subsequently modified, but the sale and pricing provisions of the decree are still in effect for S/390 and AS/400 equipment, which uses proprietary operating system software. IBM, worried about what vast installed S/370 and S/390 base is up to, surveyed its US customers to get an inkling of what their plans are in the coming years. IBM, according to S/390 business partners, apparently asked each of its mainframe customers if they planned to dump their IBM mainframes over the next few years. The answers are very interesting, especially when you break the responses up by the amount of MIPS at the site. For customers with 5 MIPS or less of processing power at their site, 50% of them said that they were ditching their IBM mainframes. Half of those l

eaving in this part of the IBM mainframe base said that they were moving to AS/400s. About a quarter of mainframe customers with 6 to 10 MIPS of power said that they would be leaving the S/390 fold; 10% of those with 11 to 50 MIPS said they were leaving. Only 7% of customers with 51 to 100 MIPS planned to exit the S/390 base, and no one above 200 MIPS was leaving. The more courageous question for IBM to ask its customers is what percentage of applications, but type, importance or MIPS usage, will remain on the mainframes at those customers who are staying in the S/390 fold, and what percentage has been moved or will be moved to alternative platforms such as the AS/400, PC servers running Windows NT or one of many Unix servers. But with the exception of mentioning the AS/400 among the smallest S/370 customers who are leaving the IBM mainframe base, IBM was not specific about what their plans were.

Small enterprise

Obviously, IBM has done a good job keeping hold of its high-end mainframe base. But the Multiprise machines, which has been trying to sell for two years, are not what low-end S/390 customers want. Customers with 4300s, 9370s or 9221s look at the AS/400 model 150 entry server and the AS/400e Apache Invaders with longing. These rugged yet small enterprise servers that cost $8,000 to $65,000 including the OS/400 operating system and DB2/400 data base management system. A similarly powerful Multiprise machine costs $15,000 to $162,000 – and that doesn’t include the mainframe’s OS/390 operating system or DB2 database. When you add in this software and other application development tools, the Multiprise costs three to four times as much as an AS/400. And even the AS/400 is twice as expensive as a high-end NT server or a low-end Unix server of equivalent power. IBM must not want to keep these thousands of small mainframe customers, many of whom have had relationships with IBM for decades. Oddly enough, while one side of IBM is talking about how it will address the needs of small and medium businesses, Big Blue has spent a decade ignoring the complaints of these loyal mainframe shops that IBM’s baby S/390s, regardless of impressive price/performance increases relative to prior S/370 generations, are still far too costly to be practical. All evidence suggests IBM isn’t going to do much to stop them from migrating to other platforms, except keep charging those who stay the highest possible prices they can get for S/390 hardware and software.

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