System iNetwork

October 20, 2008

Did IBM i Take One for the p Team?

In the face of general economic distress in the United States, IBM's overall financial performance for the third quarter of 2008 was surprisingly solid. IBM reported total revenue of $25.3 billion, up 5 percent as reported, or 2 percent at constant currency. IBM's CFO Mark Loughridge, in his message to Wall Street last week, attributed IBM's solid overall performance to the company's distributed balance of solutions and services, delivered worldwide. Digging down into the Systems and Technology segment, however, reveals rocky ground: $4.4 billion in revenue, a total decrease of 10 percent.

Although System z mainframe server products increased 25 percent compared with the year-ago period--with a 49 percent overall increase in MIPS computing power--other hardware lines didn't fair as well. Revenues from the System x server line decreased 18 percent, while revenue from System Storage decreased 3 percent. And what of the System i, System p, and "converged" System p?

"Converged System p was up 7 percent, reflecting strong demand for IBM's virtualization technology and energy-saving capabilities," Loughridge reported.

"This is the ninth consecutive quarter of revenue growth, again gaining share and extending its market leadership position. High-end servers were up 19 percent year to year, and midrange servers were up 21 percent," he explained, noting, "legacy System i revenue declined about 80 percent year to year as we continued to transition our customer base to the converged POWER platform. This is a very small piece of our portfolio reflecting prior generation technology."

Taking It on the Chin

Loughridge's comments seem to reveal some interesting behind-the-scenes decision-making from IBM. The company has stated several times that it's reporting the new Power Systems revenue as "converged System p" because that's the best way it can report it within its own reporting structure. This seems odd, given that so many companies are in the business of evolving products and creating new ones--surely companies that create bold new server lines such as Power Systems aren't legally hampered from calling them Power Systems?

No, the problem arises in that IBM apparently wants to lump everything it can in to a "System p" bag so that it can brag that its System p line has had nine consecutive quarters of revenue growth, "again gaining share and extending its market leadership position."

What does this really mean? It means that if IBM reported System p revenue exactly as it did System i revenue, then System p revenue would likely have not shown revenue growth this quarter.

Here's the equation as IBM wants it reported:

Old System p + Power Systems with AIX + Power Systems with IBM i = Converged System p

What it should be is:

Old System p = Legacy System p

Old System i = Legacy System i

New Power Systems = New Power Systems

IBM is playing a marketing game with System p, and it's doing it so that it can say it's the Unix market leader, etc, etc. And that's fine. Unix is a competitive space. But we know the truth:

IBM i is taking it on the chin so that System p can shine a little brighter against the likes of HP and Sun.

Posted by cmaxcer at October 20, 2008 9:22 AM