Wednesday, July 24, 2013
What’s happening with IBM System x?
By Bill Moran, Rich Ptak
We’ve heard some wild speculation about the potential demise of IBM’s System x. Let’s see if there is any reason to worry about the future of this popular platform.
Recall several years ago when IBM decided to exit the PC market and sold its PC business to Lenovo. At that time, competitors (and pundits) forecast a virtual catastrophe for IBM PC users. As customers of IBM's PC business and now of Lenovo, we would rate that transition a great success. Lenovo, originally a Chinese company, has become the #1 vendor of PCs worldwide (in terms of number shipped). IBM gracefully exited a business where it was not making money, while at the same time taking steps to assure its customers were well taken care of. The whole situation wound up as a win for everybody concerned. IBM's handling of the situation contributed to the win along with, of course, Lenovo's follow-through.
IBM has been providing x86- based systems for many years, and the architecture plays a key role in many of its products. For example, IBM’s PureSystems, the company’s highly successful expert integrated system depends on x86 components. IBM competes in the high performance computing (HPC) arena with its x86-based iDataPlex offering. A few minutes spent on the IBM System x website displays an array of solutions ranging from the high-end, enterprise-class eX5 to high-volume System x to BladeCenter, Flex Systems, etc. The IBM SmartCloud Desktop Infrastructure is a new virtualized desktop offering on System x. The variety is an indication of the growth potential that IBM sees and invests in for x86. The research investment in PureSystems alone exceeds $2B and 3 years of effort. This includes software, as well as the R&D for both platforms (Power and x86). We don’t know how the funds were spread, but have to believe a considerable amount went to the x86 components. IBM isn’t likely to squander that investment by dumping the platform.
Recent market conditions due to delayed capital investments, slow business growth and competition have resulted in significant downward financial pressure on hardware vendors like IBM, Oracle, HP, and others. One result has been the emergence of the rumor that IBM will sell off its x86 server business. Along with the rumor come predictions of end-of-life horror that owners of IBM platforms can expect, including no support, platform abandonment and failure along with fire and brimstone. Blah, blah, blah; we’ve heard it all before.
Now, we are not privy to any inside information on this topic, but our experience and insight leads us to the following belief: IBM will not abandon its x86 business for reasons beyond their significant PureSystems investment. First, IBM is one of the leaders in the x86-based server business. Things may have slowed, but despite hysterical forecasts, it’s unlikely to become irrelevant as a platform any time soon. Also, IBM just recently announced significantly extended support for the x86-based PureSystem platforms. PureSystems and Blades are clearly integral parts of IBM's total strategy. Sales of x86-based PureSystems are clearly very healthy. In the most recent Earnings call, IBM’s CFO reported that over the last five quarters, they had sold 6,000+ PureSystems in over 100 countries. These are split across processors with about one-third x86 only, one-third Power only and one-third with both server types.
Also, IBM’s x86 roadmaps and invest plans indicate plans for a 3-year investment of roughly $1billion in platform solutions, enhancements and extensions. Recognizing a growing customer preference to purchase integrated, optimized solutions, IBM is investing heavily, across all platforms, in providing x86-based solutions that accelerate time-to-value in today’s highest demand areas, including cloud, analytics, mobility, etc.
Having said that IBM is in the x86 business for the long haul, there remains the possibility that IBM management may determine that some x86 market segments would benefit by being closer to the PC business. For example, a volume purchase of PC components might deliver cost savings sufficient to significantly increase low end server profitability.
In fact, HP’s CEO, Meg Whitman (no less), has made a strong case for this argument. In that situation, Lenovo would be a natural partner for IBM. Based on the history of their earlier deal with Lenovo, we see nothing for IBM customers to fear. We expect that IBM and Lenovo could manage a seamless transition with no disruption in customer services or support.
We expect the biggest risk in a Lenovo takeover of some piece of the x86 business revolves around enhancing the x86 chipset. Historically, IBM leveraged large systems design to advance these capabilities. It was a strategy that worked well for them. It would make sense to continue the pattern as long as IBM still had some part of the x86 business. To do so would require close partnership between the two companies. We see such an arrangement as being very viable. IBM wants to keep its customers happy. Lenovo would benefit from IBM research in advanced chip design. IBM could manage any such transition in a way that guarantees customers will also benefit from the change. This is not only consistent with past practices, but also makes good business sense for all.
The net conclusion here is that we see little risk for the customer in either scenario. We don’t see any compelling evidence that IBM will or should abandon the x86. However, if things change and it makes business sense, IBM has a clear exit path that it has already successfully followed to the benefit of all concerned parties.