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iSeries Division Deals with Harsh Headlines

Analysis of News Events
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Have you ever had one of those months—or one of those years, for that matter—where you found yourself blindsided by a wave of bad news? If you have, you know how hard it can be to maintain an upbeat attitude or, at the least, stay philosophical about it all. Such is the challenge that many people in IBM's iSeries Division are facing right now. That is because January is shaping up to be "one of those months" for them.

Consider what has happened lately to the gang in Rochester. Early last week, Vice President of iSeries Marketing Peter Bingaman announced that he is leaving IBM immediately to take a position at LexisNexis Group, a well-known provider of information and research services. According to sources inside IBM, Bingaman's resignation took effect last Wednesday. During his tenure with the iSeries Division, Bingaman launched several successful marketing campaigns that significantly increased awareness of the iSeries among IT decision-makers. His unexpected departure creates a leadership vacuum that could affect those campaigns. IBM has its work cut out for it to fill Bingaman's position and do so quickly enough to ensure continuity.

Right on the heels of Bingaman's resignation, IBM reported fourth quarter financial results that were, at best, a bag of mixed news. While the company's earnings per share increased by a better-than-expected 13%, its revenues fell by a disappointing 1%. Unfortunately, the iSeries was among the products that contributed to the sales decline. For the quarter, iSeries revenues were 18% lower than they were during the same period last year. That turned what was supposed to be a strong year for iSeries growth into a modest one, with 2005 revenues exceeding those for 2004 by only 1%.

As I see it, two factors played the biggest roles in the iSeries sales slump. First, sales for the quarter had to be compared against strong sales of high-end systems during the fourth quarter of 2004. As you might remember from my previous articles, that quarter was the first one when customers could buy high-end eServer i5 models. At the time, pent-up demand for such systems drove up fourth quarter 2004 sales, making it a tough quarter for comparison purposes. Second, many iSeries customers held off on purchases during the last quarter because they believed that IBM will announce new iSeries servers with faster Power5+ processors in 2006. I am not at liberty right now to say whether those customers were right or wrong on their bets. However, let's just say that everyone will learn the truth very soon.

As the iSeries team is feeling the sting from last quarter's sales figures, it must also be wondering whether another piece of bad news could hurt sales in future quarters. Last week, IBM cancelled Server and Technology Group University (STGU), an annual event that was to take place in Las Vegas this week. Early each year, IBM uses STGU to educate its field force and Business Partners and motivate them to sell servers and storage devices. While this year's STGU attendees will find other ways to educate themselves, they will lose the chance to collaborate with each other on current sales prospects. Such face-to-face collaboration helps to boost iSeries sales, and the loss of it could have a small yet significant impact on server revenues going forward.

On the brighter side, there is one bit of good news that could work to the advantage of the iSeries. Two weeks ago, IBM and Mainsoft Corporation announced an alliance to help vendors of Windows software port their applications to IBM's servers. For several years, Mainsoft has been creating products that let companies run Windows applications in other server environments. One of its products, Visual MainWin for J2EE, lets companies recompile applications written in Microsoft's C# and Visual Basic.NET languages to run on Java 2 Enterprise Edition application servers from IBM, BEA, JBoss, and Apache. The neat thing for the iSeries is that the recompiled applications can run in both OS/400 and Linux logical partitions on WebSphere Application Server (WAS) Version 6, WAS 6 Express Edition, and WAS 5.1. IBM will use Visual MainWin for J2EE to help Windows software vendors port their applications to its servers and will then assist them in marketing the solutions. The campaign could bring a number of Windows applications to the iSeries platform.

Though the IBM-Mainsoft alliance could help the iSeries, another alliance could hurt it. Two weeks ago, Oracle Corporation and Sun Microsystems announced that they will jointly promote a Java-based datacenter architecture made up of products from both companies. As part of the agreement, Sun will bundle Oracle's database on its UltraSPARC IV and UltraSPARC IV+ servers and pay for the database license fees. Since those license fees can easily top a million dollars on larger servers, the savings are far from being chump change.

Sun's bundling offer will make its Solaris-based servers more competitive on a price basis with IBM's UNIX servers whenever an Oracle database is involved. While that will pose the greatest challenge to sales of IBM's pSeries servers, it could also affect sales of larger iSeries servers that are intended to run Oracle's database on AIX partitions. Last year, several sizable iSeries sales involved AIX partitions running Oracle databases.

A Time to Stay Calm

As you can see from the latest headlines, the folks at the iSeries Division could be excused right now for suffering from an acute case of "news blues." Then again, considering the bad press that the Rochester team has endured over the years, they are probably riding out the current spate of stories with their usual brand of stoicism.

One thing that could fuel some optimism on their part is the growing number of software vendors that are modernizing their existing iSeries applications or porting new applications to the server. Another cause for hope is the impending announcement of significant iSeries enhancements, including a new release of OS/400. While I have agreed not to reveal the date of the announcement, I can say that it is sooner than many of you think. When it happens, you can bet that yours truly and the rest of the MC Press team will be there to analyze all of the details, so stay tuned.

Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at This email address is being protected from spambots. You need JavaScript enabled to view it..

Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology.


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