Mainframes

Enterprises again find the reliability and security of mainframes attractive.

Where once there was talk that the mainframe was dead, now the word most often seen in the same sentence with "mainframe" might be "resurgence." Suddenly, the reliability and security of the largest computing systems is attractive again to enterprises—many of whom never left the mainframe fold, at least within their back-end data centers. Despite the best attempts by Unix- and Windows-centric vendors to bury mainframes completely, some estimates say that up to 70 percent of corporate data still resides on mainframe systems. And according to IDC, the traditional mainframe market is holding its own in terms of revenue and unit sales.

Why? For starters, many companies are still reluctant to abandon systems in which they've made significant hardware, software and human investment.

But more important, mainframes in many cases perform certain functions—large-volume business transactions in particular—better than any other system. The rise in e-business environments, coupled with increased interest in server consolidation and a growing maturity of Linux, seem to be bringing mainframes back to center stage as the backbone of e-business.

 

IBM Carries the Torch
As the most powerful force behind mainframes, IBM carries the burden of hope for their future. The company is betting heavily on Linux, having committed $1 billion in R&D funds to the cause. So far, the Linux efforts are paying off. In 2001, according to IBM Europe, the company saw its first rise in mainframe sales (by 14 percent) in a decade. This increase is being attributed to greater customer interest in Linux.

Linux and the Mainframe: An IBM Perspective
Early Linux/mainframe collaborations raised little interest because they still only ran mainframe applications. IBM changed this with the zSeries, the industry's first Linux-only mainframes, which enable companies to run any application on a mainframe with Linux. The zSeries requires no traditional mainframe operating system experience—a key point, because another mainframe challenge is often finding support personnel—and is built specifically for consolidating hundreds of Sun or Intel servers.

After just nine months of sales, IBM shipped its 1,000th z900 in September 2001. The customer, a department store company, will consolidate its Windows NT server farm onto a single z900 machine running Linux.

In February, IBM released its next attack: The entry-level z800 mainframe. The z800 is geared primarily toward first-time mainframe customers who may not need the full, legacy-oriented mainframe power of the z900. The z800 is also significantly less expensive. While the z900 carries a price tag of almost $750,000, the z800 is expected to cost closer to $250,000.

The same month that IBM released its z800, Sun Microsystems Inc.'s Chief Competitive Officer, Shahin Khan, issued an opinion piece slamming the z800 and its underlying performance, technical viability and cost. Rather than damage IBM's reputation, the piece highlighted Sun's view of the z800 as a serious threat to its high-end Unix server products.

Sun clearly sees potential in the mainframe market and is eager to convert traditional mainframe customers to high-end Unix machines. Prior to IBM's z800 release, Sun had acquired mainframe re-hosting business Critical Path in September 2001. Critical Path's software enables sites to migrate applications from mainframes to Sun servers while preserving their existing CICS applications.

Fundamental Financials: Last 12 Months
Vendor Symbol Sales Income

Net
Profit
Margin

Return on Equity
 Debt/
Equity
Ratio		 Rev
per
Share 		Earngs
per
Share
Computer Associates
CA
$2.93
billion
-$1.27
billion
-43.5%
n/a
0.53
$5.07
-$2.20
IBM
IBM
$85.87 billion
$7.72
billion
9.00%
35.1%
0.80
$49.85
$4.35
Siemens AG
SI
$86.21 billion
$2.07
billion
2.4%
8.8%
0.42
$97.06
$2.34
Unisys
UIS
$6.02 billion
-$49.90
million
-0.8%
n/a
0.35
$18.78
-$0.36
Note: No data was available for Fujitsu.
Source: Zacks Investment Research

Others Still Ticking … Barely
Despite IBM's market domination, mainframe vendors such as Fujitsu, Siemens and Unisys continue to forge ahead, although IBM is the sole manufacturer of mainframes in the U.S. Gartner Inc. estimates that the main non-IBM vendors will remain viable through 2006. Most of them, however, are moving toward hybrid structures that combine Unix and Windows NT with their proprietary mainframe operating systems.

Some Competition Slips Away
In March 2000, Hitachi Data Systems announced plans to stop selling mainframes to new customers and refocus on Unix systems. In October 2000, Amdahl Corp. followed suit, announcing plans to quit the mainframe business as well. Although these announcements freed IBM from pressure to lower prices on its high-end systems, the company is still feeling heat from high-end Unix server vendors like Sun and Hewlett-Packard Co.

The Quest for Third-Party Support
IBM's greater challenge has been to motivate third-party application and software developers to jump on the Linux-on-the-mainframe bandwagon. SAP's mySAP.com was the first enterprise-scale application available on the zSeries, and Gartner's Mike Chuba maintains that application support will be critical factors for the zSeries' long-term success.

Taking a page from Microsoft's strategy of wooing programmers into the fold, in May 2001 IBM began offering developers free access to virtual mainframes running Linux and IBM's Shark SAN technology. The move was significant because access to mainframe environments is difficult for many developers, especially those outside large companies. The access was extended even to IBM competitors.

Easy Expansion
The z900's dynamic partitioning capabilities help companies quickly add more capacity as needed, simply by creating a new partition on the mainframe. The non-mainframe alternative is to buy and install a new server box every time more space is needed. Because each partition can run different applications on different platforms, theoretically serving several hundred thousand users from a single machine, mainframes are projected to gain rapid adoption in the technology-hosting arena, particularly among ASPs and ISPs.

Overall, both Hurwitz Group and Matterhorn Group agree that the mainframe provides an effective, energy-efficient alternative to the server farm for businesses.

Rising Growth on All Fronts
A July 2001 survey of 59 mainframe users showed that, far from being relegated to the back closets, mainframe popularity—and usage—is on a growth path. Xephon's survey showed full speed ahead in several areas:

  • 35 percent compound annual growth rate in MIPS since 1998.

  • 18 percent of those surveyed are currently running Web applications on the mainframe now.

  • 31 percent plan to run Web server or e-commerce applications on the mainframe in the near future.

  • 40 percent are currently doing Web application development on the mainframe.

  • 8 percent run Linux on their mainframe systems.

  • 25 percent plan to run Linux on the mainframe in the near future.
Earnings Growth Rates
Vendor
Last 5 Years
 FY 2002 FY 2003 Next 5 Years
Computer Associates
3%
63.5%
9.3%
15.7%
Fujitsu
n/a
n/a
n/a
9.5%
IBM
8.8%
9.6%
15.4%
11.9%
Siemens AG
n/a
n/a
58.6%
7%
Unisys
n/a
40%
40.5%
14.8%
Source: Zacks Investment Research

Mainframes as DBMS Platforms
IDC estimates that the mainframe database tool market is growing at 13.4 percent annually and should exceed $2 billion by 2003. This is good news for IBM, whose DB2 DBMS holds more than 96 percent of the mainframe database market share.

But it's good news for other vendors as well. For example, business intelligence vendor Sagent released DirectLink for Mainframe and AS/400 in October 2001. DirectLink is an integrated data extraction and integration solution to transfer and translate data from mainframes and AS/400s to real-time BI applications without programming.

Secure: Is It or Isn't It?
Two equally vocal parties dominate the debate about mainframe security. The first adamantly maintains that the trusted-computing architecture of mainframes inherently helps protect them from malicious code.

The second argues that companies must not get lulled into a false sense of security with mainframes. Hackers are only now getting easier access to mainframe environments, which had long been sealed off from exploration. Critics say that technologies like Web-to-host, which expose mainframes to the Internet, mean it's only a matter of time before intrusions begin.

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