IBM Acquiring PSI

IBM is acquiring mainframe rival Platform Solutions and plans to blend the company's technology into its own System z mainframes.

The July 2 announcement also means that the longstanding legal rivalry between IBM and PSI that involved accusations about intellectual property and unfair competitive practices will come to an end once the purchase is formally approved by both companies.

The financial terms of the agreement were not released. In a statement, IBM executives said PSI's employees and its intellectual property and mainframe technologies would eventually be folded into IBM's System z mainframe division.

"IBM's strategy is to continually evolve our mainframe technology to help our clients tackle the most demanding business issues," Anne Altman, general manager of IBM System z, said in a statement. "We will continue to move the mainframe forward through both IBM innovation and by acquiring new technologies. We welcome Platform Solutions, Inc., and look forward to collaborating with them."

For years, IBM has dominated the mainframe industry as it remains one of only a handful of vendors that still design, develop and support mainframe technology. Since vendors such as Amdahl and Hitachi stopped making mainframes, Big Blue now has a virtual lock on the field of Big Iron.

IBM announced its new mainframe, the System z10, earlier in 2008 and the company continues to make improvements to the mainframe operating system.

In 1999, PSI attempted to counter IBM's dominance of the mainframe market. The company attempted to offer mainframe technology at a much lower cost by tapping into more industry-standard technology such as Linux and Windows. The company's mainframe systems were powered by Intel's Itanium processors.

In November 2006, IBM took PSI to court to dispute claims that the smaller company's mainframe technology would work with System z. In its lawsuit, IBM argued that PSI's claims of compatibility were causing confusion in the marketplace and threatened IBM's business.

In 2007, PSI countersued IBM and claimed that the company had been using its dominance of the market to squash any and all competition when it came to the mainframe.

"By leveraging its position in the market of operating systems and exploiting the inability of consumers to easily change platforms, IBM is depriving PSI of any meaningful opportunity to compete and is preventing PSI's customers from purchasing the mainframe products they want," PSI argued in the court papers that were filed at the time in the U.S. District Court for the Southern District of New York.

Now, those questions will go unanswered as IBM folds PSI into its mainframe division.

"This acquisition makes the most sense for our companies—to collaborate on future technology offerings and maximize our combined knowledge and skills for the benefit of IBM clients globally," PSI President and CEO Michael Maulick said in statement.

The news that IBM had bought one of the few competitors left in the mainframe market drew an immediate rebuke from the nonprofit CCIA (Computer & Communications Industry Association), which claimed the acquisition would hurt competition and the businesses that rely on mainframe systems.

"This is a Black Hole acquisition," CCIA President Ed Black wrote in a statement. "It sucks the life out of the market and destroys the matter. It is transforming a market with latent potential for competition and innovation into a sector with little prospects for anything but complete domination by IBM."

The mainframe business proved profitable to IBM in the first quarter of 2008. IBM's System z mainframe business grew 10.4 percent year-over-year with revenues of $1.1 billion in the first quarter, according to IDC. IBM is also looking to develop its mainframe as a tool for consolidating large data centers and for virtualization.

The question for IBM now is what it will do with the technology it inherits from PSI.

Charles King, an analyst with Pund-IT Research, said he believes that IBM will use the PSI technology to offer customers that are running legacy mainframe applications a chance to switch to a newer, although smaller, mainframe platform instead of moving those applications to an x86-based server or a higher-end Hewlett-Packard or Sun Microsystems system. In other words, it's a way to keep existing customers who might seek an alternative to the IBM mainframe.

"The acquisition is more of a benefit to IBM than just taking a competitor off the board," King said. "The mainframe customers that have wanted to migrate away from the traditional mainframe have not had a lot of options within IBM … This is a question that IBM has been dealing with for a while: What do you do with clients that have mainframe applications but do not need a full-blown mainframe? The technology from PSI gives IBM the ability to offer some interesting IBM-based migration alternatives."

Then there is a question of what happens to the PSI mainframe systems that use Intel's Itanium processors, since IBM has its own processors built into the mainframe. King said he believes that IBM will take what it needs from PSI for System z but no longer develop on Itanium, which could be a setback for Intel as it looks to increase the community building applications around Itanium.

Editor's note: This story was updated to include quotes from an analyst and CCIA.