GartnerGroup on AS/400 Sales Outlook

For everyone who sweated out last year’s AS/400 sales slump, GartnerGroup VP and research director Tom Bittman has good news: There is a light at the end of the tunnel.

“This year’s third and fourth quarters should be gangbusters, and users really should take advantage of this time,” Bittman says.

Which brings us to the bad news: It’s a pretty long tunnel!

“We see a very serious freeze lasting well into the second quarter of this year,” he adds.

At IBM, however, the outlook with regard to AS/400 sales in the coming months is decidedly more optimistic. Responding to reports that AS/400 deliveries have been taking up to twice as long as normal, IBM spokesman Matt McMahon initially explained that delays were due to an increase in December sales. In addition, in this issue’s interview, AS/400 general manager Tom Jarosh told MIDRANGE Systems that IBM expects first-quarter sales to pick up dramatically over 1999’s numbers and put the AS/400 well on its way to recovery and returning to normal sales levels. Neither gave specific figures, however, and IBM representatives did not return later calls requesting additional comments.

Bittman, who said he believes the slow service is more likely the result of inadequate planning for Y2K, agrees that the AS/400 will recover, but proposes a different time frame. In large part, he attributes last year’s decline to consumer hesitancy due to Y2K concerns. Although that has virtually disappeared now, a decline in product sales is generally anticipated before a new release hits the market, which for AS/400 is expected in the third quarter of this year. Combined, these two factors are contributing to longer-than-expected losses in sales.

“Right after the year 2K freeze should be over, we’ve got the second-quarter holdout in anticipation of the new release. Year 2K completely compounded the freeze that would have already taken place,” Bittman says.

The worry for consumers and for IBM, however, should not be rooted in early sales figures if in fact they turn out to be less than desirable says Bittman. Rather, the main cause for concern should be the potential reaction by IBM, which recently announced a round of layoffs and installed a new server division head, Sam Palmisano, in September.

“With a new head of the division, he may not know what to make of a continuing slump,” Bittman adds. “There’s a lot of politics involved. A lot of people’s jobs are on the line, and those people may not be willing to wait a year to see things turn around. …There’s every expectation that this will turn around in the second half of 2000, and if it doesn’t, heads will roll.”

Impatience with poor sales in the first half of 2000, Bittman says, might manifest itself in changes in IBM’s AS/400 marketing and pricing strategy, “just to show that they’re kicking.”

While he is cautious when it comes to predicting a rapid recovery, however, Bittman is by no means a doomsayer. When sales do start to pick up, he says, the recovery will be substantial.

“We tell customers to ignore all the industry press, ignore the bad news you’re hearing, and if this pattern continues, worry about it in the third and fourth quarter,” he explains. “But I don’t think that’s going to happen. The new release will come out and people will upgrade to the new models. …Third and fourth quarter should be really good for AS/400, especially compared with the really abysmal performance in the third and fourth quarter last year.”