March 2005

IBM made the iSeries its billion dollar baby

IBM’s alternative for the HP 3000 customers forced to leave the platform, the iSeries, got more support from IBM through investments, promotion and promises in late February. The iSeries line saw its growth rate retreat into negative numbers in 2004. IBM said it is increasing its co-marketing and co-development budget for the server which is most like the HP 3000’s integrated design, boosting iSeries spending by hundreds of millions of dollars in the “iSeries Initiative for Innovation.” IBM said the initiative has a $1 billion budget, a third of what HP promised over the next three years to improve the standing of its Itanium server business.

Just like HP’s support of Itanium, IBM means to grow the iSeries customer base. IBM started with an ad campaign in major business publications, kicking off with a four-page spread in The Wall Street Journal called “Why i?” IBM is also going to pay 70 percent of the cost of partner ads when partners tout their iSeries solutions. IBM announced the initiative at its annual PartnerWorld conference in front of 3,500 partners. More than half of those are iSeries software partners who each qualify for $50,000 in new services.

With that investment IBM plans to revitalize its core vendors, so these companies can make iSeries the most profitable product in their lineups. These ISVs have deep reach into IBM’s customer base; by some accounting, the iSeries works at half of Big Blue’s 500,000 customer sites. Unlike the razor-thin margins of the commodity computer business, the iSeries boasts big profits for IBM. iSeries editor and analyst Timothy Prickett Morgan estimates that IBM earned $900 million in 2003 iSeries profits on $1.8 billion in sales — and 2004’s profits dropped to about half of that. Some of that slide was due to heavy investment to launch the new i5 servers, but some resulted from fewer iSeries sales. Morgan said that “every additional dollar that IBM gets in iSeries sales in 2005 will fall almost straight to the bottom line. MBAs will actually kill and maim for a business like this.”

To boost the business, IBM wants to include small customers in the platform road map process for the iSeries, rather than just the big companies who visited the IBM factory. A similar shift took place in the IBM zSeries mainframe business in 2003. The proprietary technology in those mainframes is now growing IBM’s bottom line once again.

Many HP 3000 customers arrived on the HP platform after a retreat from that Big Blue big iron of the 1980s. Some now see IBM’s iSeries as a way to retain a big vendor’s support for a cost-effective integrated solution.

“Ironically, one of the platforms that is currently being regarded as a suitable successor here is IBM’s iSeries,” said John Boyd, IT Manager at paper merchant gm2 Logistics Ltd., where a pair of Series 9x9 HP 3000s still serve. “Now they do support their hardware.”

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