Reader Feedback on IBM’s Q3 in Servers, Redux: The i and p Platforms Do OK

November 3, 2008 Timothy Prickett Morgan

You listed many areas where IBM has divested itself of revenue streams (PC, disk drives, networking, printers, etc.). There is one you left out (sort of) and it might be the most telling. A few months ago, Lenovo started offering Intel servers “based on technology licensed from IBM.” These are nearly clones of the IBM x3200, x3400, x3650, etc. This is the heart of the entry Intel server lineup from IBM.

While IBM has not (yet) dropped its entry Intel servers, it’s not difficult to imagine that they might. First they license the hardware technology to Lenovo. Then they either trim that line back, or simply drop it and point customers and resellers to Lenovo. It’s essentially what they did with PCs.

Despite anything (and everything) IBM says, its actions show it has no interest in the entry and small business space. IBM simply has no tolerance for a business model that requires volume instead of high margins. And IBM knows better than anyone that SMB will never be a high margin market space. Once (assuming) Lenovo establishes itself capable of penetrating SMB with IBM’s rebranded servers, watch IBM drop everything below a four-way enterprise-class Intel server.

Every decision IBM makes is geared toward short-term profitability. I can’t recall the last decision IBM made that was geared toward a long-term, market share growth, strategy. It’s as if every decision maker at IBM expects to retire in the next five years or so. Hmmm.

–KR

I hear you, man. And this is a thought that has occurred to me more than once in the past couple of years. Most recently in Lenovo ThinkServer: The Sales Pitch Sounds Familiar, where I suggested that IBM’s founder, Tom Watson, had risen from the grave on this news and was looking for asses to kick in Somers and Armonk, New York, and then said (tongue firmly in cheek) that maybe we could talk Lenovo into selling inexpensive i boxes.

And as I have reminded people for years, IBM has not made its own X64 servers for years and contracts out the job to Sanmina-SCI; IBM only makes Power and mainframe servers and BladeCenter blade servers at this point in its nine-decade history; IBM used to make the high-end X64 Xeon MP machines, but I have heard that it may not make those any more, either. The truth is, very few of the PCs and may of the servers with an IBM, HP, Dell, or Sun brand on them are made by the so-called “manufacturers.” While the IT vendors have a big hand in the design, their supply chains and their manufacturing are contracted out, often to specialists in Asia.

If you think a company needs to have manufacturing capability to do good engineering–how can you design something without knowing if its manufacturing operation can be scaled and done efficiently?–then the scary part, as far as I am concerned, is the appointment back in May of Bob Moffatt as general manager of IBM’s Systems and Technology Group, which designs and “makes” its various server and storage products. Moffatt has been at IBM for 30 years, and eventually became general manager of the company’s Personal and Printing Systems Group, the formerly merged PC and printer businesses that IBM has subsequently sold off to Lenovo and Ricoh. Since 2005, Moffatt has been senior vice president of Integrated Operations, which means he ran IBM’s supply chains, its call centers, and its customer fulfillment operations. IBM’s supply chain has been increasingly offshored to China and substantially reduced as the company has exited the disk drive, PC, printer, network equipment, and a number of other businesses.

Given this, I worry that Moffatt’s appointment, which kicked in on August 1, might mean that IBM is somehow trying to extricate itself from server design and manufacturing as a long-term strategy for selling mostly software and services, which have higher margins. I like the idea of the major IT players keeping jobs in the country where I live and keeping design and manufacturing skills alive and adapting to the world economy. I don’t like the idea of being a colony to globalization all that much. Companies and countries that do not make things are colonies–like the American Colonies were before they decided this was nonsense and fought an eight-year war with Great Britain to become the United States.

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