With the release in April of the z9 Business Class mainframe, IBM announced that it saw not only the midrange as a key market for its high-end computers, but also emerging markets like China, where the announcement was made. The moves were the latest in a push by IBM to keep its System z mainframes not only relevant, but vital. Along those lines, IBM also has rolled out “specialty engines” designed for specific workloads, from Linux and Java to databases. Its worked to some extent so far, with IBM showing continued growth in MIPS shipped, and with officials downplaying an accompanying slowdown in revenue growth.
For the last three-plus months, the job of continuing the mainframe initiative has been under the direction of Jim Stallings, an IBM veteran who most recently oversaw open standards, intellectual property income and Linux for Big Blue. In an interview with eWEEK Senior Editor Jeffrey Burt, Stallings talked about the search for new mainframe business, the focus on security and the programs to bring new blood into the mainframe world.
Can you give me a snapshot of IBMs mainframe business at this point?
The mainframe business is in good shape. As we reported at the end of the fourth quarter last year and as we reported at the end of the first quarter this year, it continues to grow. We measure our growth in a couple of aspects. One aspect is market share. IDCs reported in every quarter that the mainframe is continuing to grow. As a matter of fact, for the past five years, weve picked up in the high-end space 15 points or 14 points in market share. Its been a cumulative shift in the high-end to the mainframe. So its the leading platform, weve got about 32 points of share, but we picked up 14 points over the past five years. Probably the most obvious and apparent measure in the server business is market share. Again, thats including other platforms that are high-end from IBM. The mainframe not only continues to dominate but continues to gain share.
The other way we measure performance or the quality of the business is what we call MIPS shipments. This is processing power for the mainframe, and MIPS shipments continue to grow. And there are multiple categories. Theres a total MIPS shipment that grew in the fourth quarter over 20 percent. In the first quarter, our MIPS shipments grew 22 percent. And again, thats a number that says how much processing power youre shipping into the market on a quarterly basis. When you compare that with a year ago in the first quarter, its up 22 percent.
The third way we look at it is the MIPS shipped in what we call the new-workloads category. We track that by what we call specialty engines MIPS. These are the engines that run the new workloads—we call them new workloads [but] theyre getting to be old. Theyre Linux workloads, theyre Java workloads, and we announced zIIP [z9 Integrated Information processor], which is an information processor specialty engine that runs database workloads. So those were up very high in the first quarter. As a matter of fact, they were 35 percent of the total MIPS that we shipped. Our [chief financial officer] pointed out that the adoption of the mainframe continues to grow, the growth of MIPS continues to grow at a rate that is above 20 percent, and then as you break down these specialty engine MIPS, it shows that our strategy of being able to attract new workloads to the platform is working.
In the first-quarter numbers, the MIPS that were shipped did increase, but the revenue for the mainframes declined. How do you resolve that?
Underneath the revenue—which is why we dont just look at market share, which is why we dont just look at revenue—its why we also look at this MIPS indicator. The forward-looking view says, if youre shipping MIPS, its just capacity. If the customer doesnt use it right away, we ship it, and we count it in MIPS. Its a forward-looking comment about the customers intentions.
Customers buy more capacity, typically. They dont buy exactly what they need. So if the amount of processor power [shipped] is going up quarter to quarter, it says that the customers future intention is, “Im going to do additional work on this platform, and Im just building the accommodation.” Heres why Im really excited on this thing. Its because what got announced was that our specialty engine MIPS were up substantially in the first quarter. In fact, the mix of MIPS—of our specialty engine vs. what we call our general-purpose MIPS—was up to about 35 percent of the total MIPS. Thats a leading indicator that not only is the customer buying capacity for future use, its buying specialty engines for future use that are running brand-new workloads that have never run on the mainframe, or on their particular mainframe. Theyre saying, “Im not only going to buy capacity for general-purpose workloads. Im going to buy extra capacity at a faster rate for consolidating Linux—eliminating Intel servers, consolidating them onto what we call IFLs [Integrated Facility for Linux], or the specialty engines for Linux.” That theyre leaning into taking WebSphere and moving it into the zAAP [zSystems Application Assist Processor] engine, which is the advanced application processor … for Java workloads.
Now we announced in January … the zIIP engine that became [generally available] in April. Our early indications are that theres a thirst in the market for that. So these leading indicators on MIPS are vital to say, “OK, the customer over time is going to do work on the platform.” So thats a leading indicator that revenues will grow.
Regarding the specialty engines, is that growth within the current mainframe installed base, or do you see that coming from new mainframe customers?
We see it as both. Ill give you clear examples of it. When we made these specialty engines available to our existing mainframe customers, we saw a dramatic increase in growth—revenue growth, MIPS growth, workload growth. Now the great news is that weve taken that strategy and deployed it in the small and midrange machine that we announced back in April.
We didnt just announce a “mainframe lite,” we announced a low-priced mainframe thats around a $100,000 entry price. Its got the exact same capability with these specialty engines. So think about a small to midsize customer. They can now scale up their open-source workload, they scale up their Java-based workload, they build a database—they dont even have to wait to become an enterprise-class customer to take advantage of these capabilities. They can start out [now] because every one of these accounts I go to, they have mixed workloads. Theres nobody thats running a one-type, one-class workload.
So the reason why we say it helps with both is, a new customer to the mainframe thats buying a platform for the first time can exploit the type of capability day one with the first MIP. Which is one of the reasons why … we announced the business-class machine—called the z9 Business Class—in China, in Beijing. We had hundreds of customers—reporters, too—that witnessed it because we realized there were 10 million small businesses in and around that sector that could take advantage of that.
So this is how we see the growth, both vertically with our existing customers and horizontally, not only with medium-sized customers in new industries, but also new markets.
You mentioned the launch of the midrange mainframe in China. Can you talk about the new markets youre targeting for the mainframe?
We see this growth opportunity beyond what has traditionally been our core business. Were very strong in financial services, in banking, in insurance, even in the investment side of financial services, private banking. Weve got a presence there because those customers have always required a high level of availability, but also a high level of trust between the mainframe delivery and their customers. Its a demanding environment, its a capital intensive environment, and theyve got enough capital to do anything they want to do. They can push the envelope.
But the reality is that there are other industries now that have the same requirement for security. So if you think about health care, hospitals, doctor offices, if you think about retail—you know like I do that you cant pick up the newspaper any day of the week, and theres some breach [of security], theres some identify theft. It happens in where you would think would be the most secure places, like the [Department of Veterans Affairs].
But every institution now, public and private, has a fiduciary responsibility to secure the data and information related to it. Banks build these big, huge arches and columns out front to give you this sense when you walk in of security and trust.
But you can swipe a card in a taxi cab in Beijing. You can swipe a card in a grocery store, and its like being in the bank. So those companies now have to protect that information. There are 27 countries that have secure encryptions laws, and thats growing.
So more and more customers, and more and more customers in different industries, are looking to the mainframe, which is the most secure platform in the world, to bring that about. Again, thats growth thats coming beyond our traditional core.
In the past, mainframes were viewed for their massive compute performance. Youre saying that a key selling point now is security?
When you talk to clients, security concerns are not only about people intruding. Theyre concern is also about [breaches] from the inside. The data is on the inside. Clients are concerned from a data standpoint—”How do I secure the data from the inside?” Because, literally, with the portability of machines, and laptops and key fobs and memory sticks, theres a lot of exposure.
And with the literally thousands—some customers with tens of thousands of servers—all these connection points are opening points for breaches. So customers are saying, “Look, Im going to consolidate all my important data—particularly my client data—onto a database and get it protected by the mainframes.”
The other aspect of growth is this thing about new markets, because this value proposition about security and availability and reliability, if you think about whats going on in China, for example, as theyre preparing for the Olympics, theyre putting on a world-class show and there are companies that have to be open for business. Youve got the largest insurance company in the world [in China], youve got the largest railroad system in the world, youve got the largest post office in the world, youve got the largest patent office in the world, so there are scale issues there where only the mainframe can play.
So were getting into new markets, and the platform that is getting us there is the new business-class machines and also some of the enterprise-class machines.
Going back to the specialty engines, what are some of the other areas that IBM is targeting with these products?
We constantly look at that. Our customers, frankly, give us most of the insight about where they would like to see us grow. This whole idea of the IFL came from customers. The coupling facility that allows systems to allow multiple systems to operate as one came from customers.
We can almost, with this new capability, tackle any new workload that we like. What really drives it is customer demand, the maturity of the workload, the size of it—when it becomes big enough to customers to become consolidated—it becomes a target. So you can look out, and theres search, theres an opportunity for us. Theres things in retail thats an opportunity, so some are industry-specific opportunities.
Were looking at everything, were talking to lots of customers. There are scientific workloads that are out there. There are all kinds of business intelligence, business integration software thats out there. The limit really is the scale and the maturity and the demand for it.
The platform is designed in a way that, no matter what, youve got a core operating system thats very resilient, and now these engines can exploit that operating system. And then workloads exploit the engines.
Both IBM and the user group SHARE have talked about the importance of bringing new people into the mainframe business through such programs as zNextGen. How successful have you been in reaching your goals in this area?
When you get new blood, you get new ideas. You also get new customers. So weve got a concerted effort to bring a number of new people [into the mainframe business]. I need you to think about it like I do—its not just new people, its a new ecosystem, its an expanding ecosystem, and the ecosystem includes skills at the customer site, skills at IBM, on the innovation side as well as the delivery side, skills at the ISV, the application developers, skills at the university level—instructors, teachers, programs, as well as students.
I think of it as this circle that surrounds the platform, and all of the touch points—operators, engineers, technicians, innovators, scientists, as well as users and the people that provide the users, and the lifeblood of applications that run on the platform. So weve got a thrust that goes out on all of those strike points, so weve grown the number of applications year to year.
I think Linux applications are up to 800 that now run on the platform. Weve got 1,300 ISVs in the ecosystem, and weve got goals to dramatically grow that. And by the way, for Linux the growth is 30 percent year to year.
Youve heard about the academic initiatives. There are actually 300 colleges in that orbit right now. We pledged to put 20,000 students—by 2010—and we are close to 16,000 students and professionals being in the program now, so we will easily exceed the 2010 target of 20,000.
We wanted to get 10,000 professionals in China, and well exceed that. One of the ways well do it is … in April we announced the Shanghai Lab, which is the Linux software lab. Theyre going to focus on Linux software for the mainframe. And youll hear about other labs opening up in the emerging markets, in Russia, India [and] China.
You followed our chairmans visit … to India where he announced $6 billion of investment in India over the next three years, so were very much a part of that.
So were making a big push to get brain power, money. … So I know we talk about the young kids … but this is much bigger than that. Its probably as big as our opportunity to go after new customers.
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