The iSeries Blog

Oct 24 2007   8:49AM GMT

Get ready for a shocker: IBM System i revenues dropped again

Mark Fontecchio Mark Fontecchio Profile: Mark Fontecchio

For what has now been eight quarters in a row — that’s two years — IBM System i revenues have dropped in year-over-year comparisons. You would think at some point that the platform’s revenue would have hit the bottom of the valley with nowhere else to go but up, but that simply has not been the case.

At least System i doesn’t have to feel alone this time. Mainframe revenues dropped 31% compared with a year ago, even more than the 21% decline that System i experienced. Overall, IBM system revenues decreased, while software and services increased.

The question, of course, is why? Why does revenue continue to free-fall? There must be reasons other than a marketing problem tied to a couple of name changes. Some think IBM hasn’t been pricing and engineering System i correctly to target it at a different customer base than System p, IBM’s Unix boxes.

It is good to see that IBM has reported System i revenues separately. When IBM decided to split System i into two divisions, it wasn’t clear whether it would be able to avoid this reporting requirement. Whether it’s required or not and despite the poor news, IBM is still doing it.

Then again, do hardware revenues matter? It’s common in many places for vendors to give away hardware so they can sell the software and services. This happens with cell phones, Internet service and cable. You get the cable box for free, then you pay for your monthly service bill. You get your wireless router for free, but then pay for Internet service access. Is that the way it’s going to be for server hardware, or is this just an excuse for IBM’s dismal results?

4  Comments on this Post

 
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  • Mark Fontecchio
    I can tell you why most of the IBM midrange business went away in my area. IBM allowed a VAR to control most of this area who proceeded to abuse clients so bad they had no choice but to go with some other server platform. One by one I say the clients drop away, as the reputation of this VAR became more widely known. Too bad IBM doesn't keep better control over who is representing their products.
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  • Mark Fontecchio
    The iSeries has an obsolete image, and all this stupid name-changing hasn't done anything to help. IBM needs to aggressively, (i.e. spend the damn advertising money), promote the iSeries and tout just how modern it is. I have a friend in IT who's wife asked him what I do for a living and he told her I work on an obsolete platform writing code that is so ancient it makes the dinosaurs look young in comparison. And this was a guy who, while not a programmer, was still an IT geek and should have known the truth. Even IT people think the platform is antiquated beyond salvation. IBM needs to get out there and show the world that the iSeries can handle any task thrown at it, and do it with better reliability than old Bill Gates' megalithic nightmare ever could. But that's just my opinion. =)
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  • Mark Fontecchio
    After 9/11 I expected the As/400-iSeries to rebound due to obviously superior security. I'm still waiting. I expected the momentum towards Microsoft products to slow down, but the 'IT doesn't matter' paradigm has only gotten stronger, and the cheaper-is-all-that-matters guys seem to have total control now. I'm using a small iSeries server to do a simple integration job that our ASP refused to host on their iSeries cluster/farm when we migrated away from having our business software on a local AS/400. They refused to host any custom code, or enable remote journaling. I got around their roadblocks by accessing our database using RPG and Java/JDBC, and so we have a vital service availible for a $50K investment (hardware and programming), that our ASP wouldn't provide at any price (well, they actually told us they'd do it for $800K) because they want only to keep cashing our checks for their 15 year old code. The reason I cite this example, is that there are thousands of customers who would use this technique to bypass the shortcomings of their legacy systems if only they knew they could. I am astounded that IBM cannot sell their product. (which after all has probably the best cross-platform integration capabilities on the planet) I have come to expect that this will not change because for one thing, they haven't figured out that providing free training on WDSC for instance could counter the widely held opinion that the platform is 'Old-Fashioned'. This system can do anything, and do it better, but no one knows it because the people who build it don't know how to promote it.
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  • Mark Fontecchio
    Having System I experience ranging back 32 years (since the System/3 days), I too have pondered the continued decline of System I sales. I don't think there is a singular cause, such as poor marketing, but rather a mixture of causes and IBM needs to address all of them. The issues I see confronting the System I is: (1) Education - I hear too many complaints that colleges are not "turning out" students with System I knowledge, but the are churning out Windows. IBM needs to partner with colleges to create the new System I breed. (2) Cost - This is getting better, but IBM throw in the tools for free that will help the System I compete with the Windows world. For example, web enablement. When people think of the System I they think of "green screen" and equate that to old, ancient technology. (3) Advertising and marketing - The System I is the most solid platform on the planet. IBM must quit competing itself via the various business units. Promote the System I as the number one offering to customers. Explain the higher costs of software from third party vendors appropriately in that a System I is going to replace multiple servers. IBM has the best support in the world. There is no othr vendor on theplanet that I would prefer to work with above IBM, and not just in terms of the System I. The first two issues need to be addressed before number three. I am saddened by the seemingly decline of the best system in the world. I have had to embrace the Microsoft world too to survive in this industry. The young Microsoft cowboys do not have a clue as to the real strengths of the System I, and saddly neither do the execs holding the purse strings. I recently had a couple of IBM Global Services consultants in my shop doing some Cisco and Active directory work and they were bad mouthing the System I and Domino/Lotus Notes. They were clearly Microsoft slanted cowboys. What is wrong with tis picture?
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