IBM Servers: Are Big Numbers Ahead?

Projected revenues from e-commerce growth are staggering--research from Bill Etherington, IBM's senior VP and group executive for Sales and Distribution, puts the figure by year 2003 at $1.7 trillion (That's right, trillion!), of which the hardware portion will be $230 billion.For IBM, that's $230 billion of hardware opportunity within just three years. It's hardware--increasingly sophisticated hardware--that will enable those millions of e-business transactions projected on the horizon; everything from order processing, to shipments, to automatic credit authorizations.

Such transactions can't be executed without accessing data stored on servers from all around the world and integrating multiple systems and multiple data formats, end-to-end. With such networking capabilities, our whole economy is on its way to becoming networked.It certainly challenges the old notion of account control. Who owns the customer in this world? And who, from a services standpoint?

Much of the e-commerce explosion depends on the server, its scalability and its architecture. In December, Sam Palmisano, IBM senior VP and group executive of Enterprise Systems gave a presentation to financial analysts on the status of IBM's Enterprise Systems Group--which incorporates servers--and its opportunities in the new millennium.

There have been some cautious glances at the financial performance of IBM's server division in the third and fourth quarters of 1999 even though the division hasn't lost money. We remember when the PC Company sustained steep revenue losses last year, and had to counter erroneous rumors of a sell-off. However, the rate of growth has not kept pace with industry growth, or with IBM's internal projections.

Survival remains a fierce challenge in that particular part of the industry and hard work lies ahead.

Meanwhile, investors, analysts and journalists watch the astounding success of Sun Microsystems. But to that point, IBM is making tangible gains. It recently passed competitors SGI and Sun to claim the number one position of an independent Top 500 Supercomputers list.

Also, IBM's RS/6000 S80 model, introduced this past fall, is the fastest Unix server in the world--based on industry benchmarks--outpacing both Sun and HP. That's good news considering that IBM did not excel in Unix sales in 1999. And finally, IBM's next generation of chips--called Power4 and due out next year--is expected to reach processing speeds of more than one gigahertz, which will further enable expanded Internet capacity.

So what has this slow down been all about? It's likely that "Y2K readiness" played a role. Many IBM customers that purchased AS/400s and S/390s as essential host processors stocked up on extra capacity in 1999's first and second quarters, using that extra capacity to do Y2K testing. Now top management hopes for a resurgence of sales growth by second quarter 2000, as customers' Y2K jitters ease and they resume purchasing.

"Many of our customers are in a "lock-down mode," says Glenn Rossman, a manager of public relations for IBM. "Remember that 70 percent of all corporate data resides on IBM's servers--and the majority of that on our S/390s. We expect that by second quarter, our customers will resume their normal buying patterns."

By comparison, Sun and HP have been less affected. Sales numbers aside, IBM's servers remain critical to the company's ability to market its "total solutions," including e-commerce. By creating the Enterprise Systems Division, I see IBM striving to be the one place where customers can go for all the hardware they need, including networking hardware.

In the old days, IBM was known as just a hardware manufacturer, a notion IBM continually challenged over the years. But let's also face facts. That same hardware, in the form of AS/400s, RS/6000s, S/390s, Netfinity and NUMA-Q servers, can pave the way for the explosion of e-business.Big Blue doesn't seem to be fretting about the future of its server products and based on the information above, perhaps they're right. IBM, the new millennium has begun, however, and we'll be watching your execution to see if your high hopes pan out.

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