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  1. Technology
October 1, 1998


By CBR Staff Writer

That IBM Corp has gradually added Unix features to its MVS and, now, OS/390 operating systems for mainframes, as well as to its less important but no less popular VM/ESA and VSE/ESA environments (however begrudgingly), is one of the reasons if not the main reason why IBM is still able to generate 63% of its gross margins from server software (predominately mainframe software) while hardware sales only account for the remaining 37% (mainly from S/390 and AS/400 servers). If OS/390, VM and VSE were not Unix and internet friendly, customers would be moving to Unix and Windows NT in droves (and at the low-end of the mainframe base, IBM fully expects half of these customers to leave even after it adds Unix functionality and offers a low-cost Integrated S/390-PC Server). To its credit, IBM has, over the past releases of OS/390, attempted to make its flagship MVS operating system and their related system programs more like those in the Unix world. OS/390 2.6, which started shipping last Friday, includes support for 64-bit floating point calculations, which helps speed up Java and C performance considerably. But this, as IBM knows, is no enough. IBM is now focusing on getting better web serving performance on OS/390 (it is promising to double performance) to better compete with Unix servers, and will even add a Unix shell that actually looks like Unix to MVS (at a charge, of course) that will allow Unix nerds to set up and administer a 9672 mainframe with Unix skills alone. These enhancements will be added sometime between now and when OS/390 2.7 ships next March.

By Timothy Prickett Morgan

But even if IBM could get OS/390 to look just like AIX, HP-UX or Solaris, that sort of misses the point. If the OS/390 platform ends up costing two or three times as much as Unix to do the same exact job with essentially the same operating system, what new customers will move to it? There are definite and quantifiable benefits to using a S/390, mostly their reliability and their scalability thanks to parallel sysplex clustering, but no one want to pay that kind of premium. It is easier and cheaper to mirror Unix systems and be done with it. Amdahl is the biggest dealer in Sun Starfire servers, and Hitachi Ltd, Hitachi Data Systems parent company, is a big Hewlett-Packard V Series partner and is also helping HP make its Unix more robust. If IBM pushes these two companies hard enough, they may have no choice but to cannibalize their own S/390 clone bases and convert them to Unix, and then IBM would see mainframe software revenues and margins take a serious beating that would more than offset any gains IBM got by driving Amdahl or Hitachi out of the S/390 hardware business. And no matter what, IBM has to cut mainframe software prices, and it can only afford to do that if it is selling a lot more server hardware. For every dollar IBM cuts software prices, it has to sell two dollars worth of hardare to make up the difference in profits. To cut mainframe software prices in half, it would have to basically double its revenue from all PC and server hardware lines to keep the same profitability. A very tall order, and one that we think Chairman Louis Gerstner is unlikely to take. A 10% to 15% cut in mainframe software prices, which are set to change on September 30, is probably more likely. It keeps current customers from getting angry, but doesn’t upset IBM’s financial applecart.

Amdahl and Hitachi

For now, even with software price cuts, it might make more sense for IBM to hire Amdahl and Hitachi as S/390 resellers and get them out of the hardware business entirely (kind of a reverse of the IBM-StorageTek disk array deal), give them both a slice of the software take and then figure out how to make HP and Sun sweat a unified mainframe front. Amdahl and Hitachi also have plenty of experience with both Unix servers and MVS, and could be instrumental in making OS/390 truly equivalent to the popular Unix implementations out there. And, perhaps most significantly, with tight ties to IBM, Big Blue leaves less chances for Amdahl and Hitachi to forge hardware and software ties with Intel for Merced and McKinley processors, Microsoft for Windows NT on those and Pentium Xeon chips, as well as with the remaining Unix vendors (mainly Compaq and SCO) who offer Unix alternatives for Intel processors. Keep your friends close, IBM. But keep your enemies closer.

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