Note: This is an expanded version of the interview that ran in eWEEKs print edition.
Not long ago, IBMs server business was a fragmented collection of fiefdoms, the disparate product lines running in parallel with one another. The result was a server business that was beginning to tank. But over the past few years, IBM has stormed forth, gaining market share and becoming arguably the top server company in the world.
Industry observers credit William Zeitler, senior vice president and group executive of IBMs Systems and Technology Group, with pushing the turnaround. Zeitler, who was the driving force behind the server groups big Linux push, recently spoke with eWEEK Senior Editor Jeffrey Burt about the future of the Armonk, N.Y., companys server division.
How did you get IBM back into the server game?
We started a new strategy a little over three years ago with the launch of the IBM eServer, but we actually began the investments a couple of years before that. And we have made considerable progress since that time. … [Since] the end of the third quarter in 2000 … weve gained every quarter. And very importantly, weve gained back more in the three years than we lost in the decades of the 90s.
[Hewlett-Packard Co. has] been losing pretty steadily during this period. Sun [Microsystems Inc.] went up for the first couple of quarters, and then in the beginning of 2001, theyve been dropping pretty considerably. The only other one making progress is Dell [Inc.], and Dell and IBM have been gaining over the last three years. Were the only ones making money.
The real story is, we have a strategy that is based on innovation and positioning ourselves in places where we can add value to customers. Dells got a strategy based on superior execution and a good business model. The two of us have been gaining at the expense of HP [and] Sun. And you can see the consolidation in the industry [on the analyst market share charts].
Can you compare IBMs server strategy with that of your largest competitors, particularly given Suns embrace of Linux?
There are three elements to the strategy that we put in place. First is around leveraging leadership technologies. We were always strong in high-end systems—mainframes, supercomputers—and the first fundamental decision was to leverage the technology we had in those systems to deliver leading-edge capabilities into the larger segments of the market, Unix and Intel [Corp.] servers in particular.
To do this, we reorganized all of development. Before we had mainframes, Unix and midmarket servers, Intel servers. We put them all together. … So that gave us new high-end Unix systems, that gave us leadership in Intel systems. We took scaling technologies we had in these higher-end systems and put them into new chipsets that worked up to four-, eight-, 16-, 32-way Intel servers, new system control stuff that created the BladeCenter system. We had continued our technology leadership investments into new microprocessors, new packages. Weve got a very robust next-generation family coming out [this] year across the whole line.
The second major element of this strategy was to very strongly support the open movement in all of our platforms—Linux, Apache, XML, Java. Our logic was that new applications, new workloads would come on those platforms and that we should have excellent capabilities for Linux, whether you wanted to run it on a mainframe server or an Intel cluster. What differentiates us here from our competitors is that we have been early proponents of this and consistent proponents of this. Sun, while they now claim support for Linux, for a long time was trying to protect the Solaris franchise. A lot of [Linuxs] success is substituting against traditional RISC Unix platforms. If you looked at whats really happened underneath market share shifts over the last few years, [theres] pretty dramatic erosion in the low end of the RISC-Unix space onto four-way systems, substituted by Linux on Intel or Linux on virtual partitions or things like that.
The third major thing we have been trying to do is introduce a set of tools and capabilities that make it easier for customers to manage these multitiered, heterogeneous environments that typify how they operate. Some of this has to do with system control technology built into the product, some of it has to do with autonomic capabilities we built into the products. Same idea: take things we had in the mainframes and high-end supercomputers and apply that kind of across-the-board for all of these products.
What differentiates us vis-a-vis Dell is more in the first and third areas. I think weve innovated. One consequence of that is a much stronger position in the high end. What differentiates us against Sun is mostly in the second area. We have been a more consistent supporter of Linux and the technologies in the open movement and that has helped us against Sun. What differentiates us against HP is execution. Weve just done a better job of not just executing against our strategy but executing in the field.
Next page: Looking at different markets.
You seem to be looking at different target areas, different markets.
I think that would be fair to say. For the last six quarters, according to IDC, we have outgrown Dell [in Intel servers], which is an important thing for us because Intel servers are the fastest growing part of the market. And we want to make sure, not only are we just growing faster than the market, but that were growing faster than anybody in the individual segments in the market.
2004 looks to be an important year for IBM and its servers. Youve got the Power5 processor coming out, youre continuing to push Linux on the Power platform, blades are going to become an even larger part of the market. What are the crucial points for IBM this year?
I agree that 2004 is a critically important year for IBMs server business and in the systems business overall for the reasons that you talked about, but also because over that last three years, we have been gaining in a down market. We have been gaining by virtue of taking share from others as the market declined.
It is pretty clear that the market is coming out of its decline. Its not going to grow probably like it did in 99 and the first part of 2000, but the last two quarters have been flat [or] up a little bit and I think youll see that going forward. Youll see people invest in new kinds of applications, new kinds of systems uses for a whole variety of reasons, not the least of which there has been kind of a step-level improvement in price/performance, and any time you see that—and it came because of Linux, and it came because of accelerating commoditization and things like that—it eventually opens up new uses for technology, new applications areas.
We have an enormous amount of product coming to market [in 2004], which is the result of the investments that we have been making over the last couple of years. [The newly released four-way Xeon blade server is] going to keep the really solid momentum we have behind BladeCenter and the whole BladeCenter Alliance program. What were trying to do here is define kind of the de facto industry standard. We and Intel think one of the biggest inhibitors to the adoptions of blades was the fact that there was no standard. That is why we have been pretty freely licensing this. Weve got something on the order of 200 companies part of this alliance, and I think this is going to see continued acceleration this year. Weve got the Power blade shipping in volume this quarter, the four-way shipping this quarter and a whole host of things coming.
The second major program we have coming this year is the “Squadron” program, which is going to be the new Power5 refresh for all of iSeries and all of pSeries and all of our storage subsystems. We have been working very diligently on not just the hardware technology but the systems control technology that we think will differentiate these products and allow us to continue to gain share, particularly in the high end of the Unix space.
Next page: Importance of Linux on Power.
Linux on Power
Some industry observers see IMs work with Linux on the Power platform as a gamble of sorts that, while it makes sense, you risk becoming distracted away from other aspects of your systems business. Can you talk about the importance of Linux on Power for IBM?
If you look at whats happened in the server market over the past couple of years, most of the revenue decline came from the RISC-Unix platform, and most of that came from four-way and below as they were cannibalized, or substituted by Linux on Intel or Linux on virtual partitions. Most of that came from Sun and HP, because they have the strongest positions there, so cannibalization for us is more of an opportunity than a threat because AIX didnt have the position there that Solaris or HP-UX [did]. So we think that Linux gives us the opportunity to get more work onto our platforms.
When we looked at BladeCenter, something on the order of 65 or 70 percent of the first 50,000 that were shipped ran Linux, which is considerably different from what Intel servers would have been in general. So our reasoning is, if it runs Linux, there are some workloads that run on Linux that would do better on Power than they would on other kinds of things and so it gave us a pretty good opportunity. I dont think that Linux represents a cannibalization threat for our Power systems. What it represents is a workload opportunity, and thats the way were approaching it.
I think here the traditional logic that would say that its difficult to get software vendors to support a new operating system on a platform doesnt apply quite as much. First, its simpler to move from Linux on one platform to Linux on another, just like we did it on the mainframes. The fact is that most of the applications that youre going to be trying to move arent traditional SAP [AG enterprise] application servers or PeopleSoft [Inc.] servers or things like that. Theyre infrastructure workloads—Web servers, file servers, cachers, firewalls, things like that—many of which had their origin in the Linux world. So when you look at it in terms of pockets of opportunity, weve convinced ourselves that there are segments where this would be attractive from a price/performance standpoint, and I dont think youll see it disrupting our current Power activities as much as complementing it.
The last part of this is that an important element of Squadron is a common hypervisor that runs on all of these platforms—[pSeries, iSeries] and storage. That hypervisor, just like on mainframes today, allows you to run different kinds of operating systems—OS/400, Linux, AIX, storage subsystems. So, just like you saw on mainframes, people running multiple Linuxes to consolidate workload onto virtual servers, and just like weve seen surprising acceptance of this idea on our iSeries platform of inboarding Linux onto virtual servers, I think you will be seeing Linux workloads inboarded to pSeries systems with AIX, which is our whole goal here—get more work onto these systems. It is one of the pivotal things we have to do this year.
How will IBM get Linux really moving forward on Power?
There are three areas youd want to have capabilities. One is virtual servers on larger SMPs [symmetric multiprocessor systems], and I think our capabilities are pretty good there. The second is blade servers, and we have started limited shipments of those, and we will have them in volume in the second quarter, and the third is stand-alone one-, two- and four-way servers. Now weve had some of those in systems that were originally designed as AIX systems, the [p630] and things like the [p615]. In the first half of this year, youll see more high-volume stand-alone—that is not big SMP partitions and not blades. And I think were going to need to do all three of those things to be attractive to people. We have plans to work in each of those three.
The other reason that the blade is interesting is because its the first time that we used the PowerPC 970, which is the same processor thats used by Apple [Computer Inc.] in the G5, and part of our strategy here was, if you are really going to be broadly successful in high-volume Power, youve got to have a different design and cost point. Prior to this, we were trying to make the one processor fit everything, from 64-ways down to blades, and that was kind of hard recognition for the technical team to get themselves to. But now that theyve gotten themselves to it, I think that youll see us accelerate the delivery of things that are optimized to the low end.
One of the reasons we did better on the high end and didnt do so well on the low end was that our design point for these Power4 and Regatta systems, we consciously started to capture the high end. We didnt design for the one-, two- and four-way space, really, we accommodated them. Now that was good for us when Linux came in and cannibalized the whole thing, but if you say, “How are you going to take advantage of all this?”, some of the things that really are very, very important at the high end that cost that maybe you dont want at the low end.
So we made another important breakthrough in the middle of last year, which is … maybe we should use the other elements of the Power family [and] drive off of the high-volume products that we have. In the one-, two- and four-way space, we had products that were Power-based, in the [p615] and [p630], but in the middle of the year youll see built off these 970 products much better optimization into that spot, cost and performance optimization.
Next page: Lukewarm embrace of Itanium and Opteron?
IBMs embrace of Intels Itanium and Advanced Micro Devices Inc.s Opteron has been described as lukewarm. What direction is IBM going with these 64-bit technologies?
I wouldnt say its our commitment that is lukewarm. … Were ready to deliver products if the market acceptance is stronger. We positioned ourselves to deliver it by using the same technologies. Now, is HP more committed to [Itanium]? Id say HP probably is more committed to it because theyre moving all of their HP-UX PA-RISC stuff and the Alpha products and the Tandem products and everything to it. We did not do that. We say that if you want a 16-way system with Itanium, we have one that will cost 60 percent of what HPs does and it does fine. I personally think HP will have some difficulty in migrating all these various platforms to the Itanium base, but thats their problem, thats not my problem.
In terms of Opteron … you have a lot of people today—a lot of customers, a lot of software companies—saying, “I would much prefer if I could run the current IA-32 applications that Ive invested billions in and go in a more seamless way toward 64-bit capabilities.” Thats the reason the Opteron product is attractive to people in the market. It doesnt have anything to do with us.
Are customers asking you for Itanium systems, or are they taking a more wait-and-see attitude?
Its more wait-and-see. … I think its pretty telling that Opteron servers outshipped Itanium servers by more than 2-to-1 in the latest IDC [numbers]. And the Opteron is pretty early in their life comparatively.
Is there any worry that youre spreading yourself too thin?
This is a very important point. When we started five years ago or so to get away from a mainframe development and a Unix development and an AS/400 and an Intel and [move into a] common development group, thats what gave us the opportunity to invest in all these mainline platforms and invest in future things without compromising our financial performance. If we still did it the way we used to do it, wed never been able to make these investments on whats next because it takes too much money to do whats next.