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iSeries Division Delivers a Solid Second Quarter

Analysis of News Events
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When IBM announced in mid-July that its second quarter revenues had grown by 6% over the previous year, it pointed to the iSeries as one product that contributed to the growth. Since the announcement, sources inside the company have revealed further details about how the iSeries Division performed during the second quarter. Those details paint a picture of a server that could be on the verge of reversing a long-term downtrend.

For the second quarter, iSeries revenues increased by 10% over the same quarter last year. Much of the growth came from the Americas region, which notched a 21% gain in sales for the quarter. While Europe continued to lag behind other regions, it recorded a 6% revenue gain when combined with the Middle East and Africa. In addition, some industries delivered standout performances. Financial services firms grew their iSeries spending by 73% while the public sector boosted purchases by 21%.

Much of the growth that these regions and industries experienced was fueled by a whopping 34% increase in the number of high-end systems that IBM sold. As I see it, much of this increase was due to the timing of last year's eServer i5 announcements. While IBM announced low-end eServer i5 models in the middle of 2005, it did not announce the high-end Model 595 until October and did not ship the system until November. This means that pending deals for high-end systems were pushed into early 2005, with many of them closing in the second quarter.

While IBM will probably get another revenue boost from high-end model sales during the current quarter, it cannot count on such sales to help it stay in the black. To achieve long-term growth, Big Blue must stay focused on reenergizing software providers around the iSeries, as their solutions provide the greatest stimulus for ongoing sales. It must also continue to invest heavily in marketing that builds awareness and preference levels for the iSeries.

Fortunately, the iSeries Initiative for Innovation is making progress on both of these fronts. According to Peter Bingaman, Vice President of Marketing for the iSeries, awareness of the iSeries grew by 10 points on a worldwide basis between the fourth quarter of 2004 and the first quarter of this year. This is the largest quarter-to-quarter increase in awareness levels that I can remember since the 1990s. As I described in an article back in June, software vendors are also signing on to the Initiative for Innovation in growing numbers. At this point, over 400 vendors have requested technical assessments from IBM to help them modernize their iSeries applications.

What's in Store for the Rest of 2005?

As the iSeries Division looks ahead, it is planning new initiatives to help it build on the momentum it gained during the first half of this year. According to IBM sources, one of the company's biggest priorities is to get all of its regional sales teams to execute on the iSeries sales plays that corporate headquarters develops. Over the last several years, some of IBM's regional teams have become less enthusiastic about calling customers and supporting iSeries partners on sales plays. To remedy the situation, the iSeries Division has appointed Bill Donahue, a former Vice President of Sales for the pSeries Division, to manage worldwide sales for the iSeries. Donahue comes with an impressive track record, as he helped to drive 12 consecutive quarters of growth for pSeries sales in the Americas region. That included dramatic growth over the last three quarters in sales to small and medium-size businesses, the sweet spot for most iSeries sales. One of Donahue's top tasks will be to get IBM's sales teams reenergized around the iSeries.

Speaking of sales plays, IBM will undoubtedly roll out new plays to help fuel iSeries deals during the second half of this year. Among those plays, it is highly likely that one will promote wholesale distribution solutions while another touts IBM's Workplace line of products on the iSeries. Look for IBM to press the point that Workplace Services Express running on the iSeries can provide all of the functionality at half the cost of Microsoft's Office System running on Windows servers.

In addition, the iSeries Division plans to give its server a leading role in a new initiative known as the IBM Systems agenda for On Demand Business. The initiative, which IBM announced last Tuesday, is focused on helping customers use servers to meet emerging demands. While today's servers expend most of their capacity on processing transactions, they will increasingly need to support collaboration between departments and companies. Compared to transaction processing workloads, collaborative processing tasks are more dynamic and volatile in their demands on servers. As such, they require servers that make heavy use of virtualization to shift computing resources on the fly. Collaborative processing also requires servers that support high levels of integration and make heavy use of open standards. Expect the iSeries management team to position its server as an ideal platform for collaborative processing that exemplifies these On Demand qualities.

In short, IBM plans to grow iSeries revenues during the second half of 2005 at a pace that will meet or beat its gains during the first half. Even if it succeeds in doing so, it will take several more consecutive quarters of similar growth--not to mention heavy ongoing investments by IBM--before the iSeries can be said to be on a solid growth trajectory. Mark Shearer, the General Manager of the iSeries Division, subtly acknowledges this fact when he says that he will remain at his post until the iSeries is revitalized, and he estimates that he will have a multiple-year tenure. That provides a glimpse of what IBM's top management thinks it will take to ensure a healthy future for the iSeries. Let's hope that the company keeps believing that the server is worth the extra attention and effort.

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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