Throughout much of 1997 – indeed much of the decade – the computer media has been sharpening its pencils, preparing to write the obituary for IBM’s midrange AS/400 system. But Dennis O’Connell, the new general manager of the AS/400 business, is not only claiming a renaissance for the nine-year old platform, but as predecessors have often done before, he is predicting that fourth quarter revenues will be the highest ever achieved. Of course, given the money that IBM has invested overhauling the AS/400, a few hundred million, according to O’Connell, combined with a $100m marketing campaign, it would be disappointing if a sales boom was not the result. But given its recent history, a slowdown would not have been surprising. O’Connell blames the AS/400’s disappointing sales in the first three quarters of the year to user uncertainty over the machine’s future. But the overhauled range, announced by IBM in August, combined with the marketing campaign, has apparently convinced nervous customers that IBM is committed to the AS/400.
A loyal base
As a result, in the final quarter of the year, buyers have returned to the system in droves, says O’Connell. This view is supported by Gartner Group analyst Ed Thompson. But, although the AS/400 retains a loyal base of around 165,000 users, approximately 100,000 of which are in Europe, questions continue to be asked about its attractions for new users and therefore its long-term future. IBM’s strategy is to ‘e-business’ enable the machine. That means the latest models, labeled AS/400e, have extensions to the OS/400 operating system and software to enable users to conduct business directly over the Internet. In addition, Lotus Domino and Netscape SuiteSpot, two market leading electronic commerce packages, come bundled with the systems at no extra cost. To further support its position as an Internet working platform, IBM has also ported a Java virtual machine to the AS/400. Critics say the e-business message is an attempt to dress up the dowdy, semi-proprietary AS/400 with a modern image. O’Connell admits that the number using the AS/400 for e-business today is small: I would guess that it’s probably in the 10% range. But IBM thinks that electronic commerce over the Internet will take off faster than most people are predicting, and that the company will therefore benefit by being there at the start. But more serious for the long-term future of the AS/400, says Thompson, are the difficulties that IBM has had persuading independent software vendors to support the machine. Although some high profile companies, such as SAP, have been persuaded to port their packages to the AS/400, most other ISVs prefer the bigger market that open systems offer. Another major problem, notes the Yankee Group’s Helen Kirkman, is that the AS/400 remains popular with older IS managers who cut their teeth on proprietary systems. The up-and-coming generation believe the AS/400 to be a throwback to the 1980s and favor Unix or Windows NT, regardless of IBM’s claims of superior performance, ease of use and lower overall cost. In short, despite the slick marketing campaign, IBM has failed to convince many – especially the influential analyst community – that the AS/400 is going anywhere. It remains formidable in its particular niche among small and medium-sized businesses, especially in Europe, but Thompson of Gartner is not recommending the AS/400 platform to clients unless they already have it installed. As Microsoft and its allies continue to improve the competency and range of Windows NT, say skeptics, IBM will see AS/400 users trickle to lower margin ‘Wintel’ servers – its own range of such systems if it is lucky. O’Connell’s challenge is, therefore, a defensive one: To maintain the AS/400 customer base long after the pent-up demand for the new AS/400 machines – which Thompson believes will last for the next three or four quarters – has been satisfied. O’Connell is not the only general manager in IBM who faces such a problem. RS/6000 Unix server sales have been moribund since mid-1996 and sales in the PC division have been slow since the third quarter too. Annex Research founder Bob Djurdjevic believes IBM is simply too bloated and bureaucratic.
Seek a break-up
His solution to the malaise is simple. He believes that chief executive officer Lou Gerstner should seek a break-up of the company. Not only would this enhance shareholder value, he says, but the move would have a liberating effect on the company’s divisions. Furthermore, he believes, such a move is close at hand. If you keep your ears to the ground, you will probably start to pick up some of the tremors on a global basis, says Djurdjevic, who believes that renewed rumors of job cuts – of 11% or approximately 8,500 – heralds the beginning of the end for IBM.
This article first appeared in Computer Business Review.
