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  1. Technology
August 24, 1998


By CBR Staff Writer

It’s a rare event when IBM gives its customers an inside glimpse at any of its businesses, but IBM recently gave a review of its RS/6000 business to the consultant community to prepare them for product line and marketing changes that are coming in the final months of 1998. The figures IBM presented show a stronger Unix server business than many might have expected, and a much weaker Unix workstation business than even pessimists thought. According to IBM’s RS/6000 strategists, during 1997, a little more than a quarter of IBM’s RS/6000 sales were for workstations and entry servers. IBM puts these two categories together because customers often buy what IBM would call a workstation and use it as a server, much as PC customers do. The same holds true for low-end servers; many customers who need a beefy workstation buy a low- end server instead because it has the capacity and expansion that they require. Only a few years ago, workstations made up the majority of IBM’s RS/6000 sales, often four, five or six times the revenue IBM made is server sales in a year. That revenue has fallen this far this fast just goes to show how well Intel and Microsoft are making headway into the bottom tier of the Unix workstation market. As it stands, IBM only saw 2% growth in workstation shipments last year compared with 1996. For 1997, IBM says a little less than half its revenue came from enterprise Unix servers – uniprocessor and SMP models like the F50 and S70 – while the remaining quarter came from high-end SP servers. These two models, says IBM, came on hard at the end of the year, significantly boosting sales.

By Timothy Prickett Morgan

IBM says that North America accounted for a little less than half of sales, which was higher than expected, while Europe brought in about 30% of sales, which was less than IBM had hoped the region would have contributed. Because economic crises had not yet hit the Asia/Pacific market during most of 1997 and the region showed very good RS/6000 sales – thanks to the widespread adoption of the internet and its Unix protocols as well as the installation of ERP suites on name-brand Unix servers – comprising about 18% of total RS/6000 sales. Latin America, which is a difficult market for IBM these days, account for the remaining few percent. IBM says that about 60% of these RS/6000 sales went through its business partner channel. This is about the same ratio of kit that IBM pushed through the channel in the AS/400 line. Increasingly, business partners who had one specialty in the midrange are having to cover both proprietary and open midrange servers to make their numbers, and IBM has done everything in its power to get partners to push both of its midrange lines in an effort to stave off the onslaught of HP and Sun for Unix environments and the myriad PC workstation and low-end server vendors in the Windows NT arena. IBM says that about a quarter of its RS/6000 sales are now going into shops with less than 50 people – this thanks in large measure to its business partners. About 40% of the 145,000 RS/6000 workstations and servers shipped last year went to companies with between 50 and 999 employees, while the remaining third went to large companies with more than 1,000 employees. About a quarter of the firms buying RS/6000s were installing the machines as their first big non-PC machine; another quarter were competitive replacements; a little less than a quarter were replacing IBM equipment such as AS/400s and mainframes; and the remaining third were upgrades in the existing RS/6000 customer base. The RS/6000 SP parallel Unix servers are making up for significant revenue falloffs in the Unix server line. By the end of 1997, the SP base had grown by 70% since the previous year’s end to almost 3,800 machines, driven by data warehousing and ERP suite installs. While IBM did not give out revenue figures, it is likely that the SPs brought in close to $1bn for IBM, not counting storage and other peripheral sales for the machines. While that doesn’t sound like a lot of money, it is probably as much as IBM made selling RS/6000 workstations last year. IBM’s SMP enterprise servers make up the bulk of the company’s Unix server revenue, probably around $1.7bn or so. When IBM ships uniprocessor and two-way Power3 workstations and servers in the fourth quarter, revenue should pick up across the low-end of the RS/6000 line. (The Power3 chips will be IBM’s first 64-bit chips designed specifically for Unix; the RS/6000- S70 uses Apache and Northstar chips originally created for the AS/400 line and are only suitable for commercial workloads.) The Power3 machines will provide the number-crunching performance that RS/6000 customers have been dying for, and IBM may even be able to boost workstation shipments and revenues despite its own aggressive moves in the NT workstation space with its Intellistation line if the Power3 chips perform as expected. Most of IBM’s RS/6000 customers have made huge investments in CATIA and other design programs as well as IBM’s AIX flavor of Unix. They have been waiting years for more powerful machines, not just the cheaper 32-bit PowerPC 604e-based ones IBM has been able to get out the door.

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