Server Manufacturing Moved Out Of Rochester, Minnesota

March 11, 2013 Timothy Prickett Morgan

Many of us who follow the IBM systems business have been predicting this day might come for many years and then talking ourselves into thinking it would not happen. But the day finally came on March 5. That was when the top brass of Big Blue’s Systems and Technology Group held a meeting with employees of the Rochester, Minnesota, facility that gave birth to the System/3 in 1969 and successor technologies that culminated in the Power Systems and now PureSystems lines, telling them that they would no longer be making commercial systems at the legendary facility.

It is not clear who held the meeting and who attended, but Jeff Kiger, the intrepid business reporter for the local PostBulletin, gave me a call and warned me something was up on Tuesday night and both of us scrambled to get some comment from IBM. He reached spokesperson Scott Cook before me and posted his story this morning. So tip of the hat there, Jeff.

According to the IBM spokesperson, who I finally reached this morning (my fault, not his), IBM will be moving the manufacturing of the Power Systems, PureFlex, and PureSystems servers that are assembled in the Rochester facility for customers in the Americas region to Guadalajara, Mexico. The refurbishment of used Power Systems equipment will be transferred to IBM’s Poughkeepsie, New York, facility, which is where it makes System z mainframes and high-end Power Systems boxes like the Power 770, 780, and 795 (as far as I know).

Guadalajara is not new to IBM system manufacturing. Big Blue had factories there to make AS/400s for many years, and as it turns out, System x server manufacturing for the Americas has already been shipped down south to the Guadalajara facility, as has been the manufacturing for some of IBM’s various storage products, which used to be made in Tuscon, Arizona, in days gone by.

As far as I know, IBM makes high-end Power Systems and System z mainframes in Singapore and entry and midrange Power Systems boxes in Shenzhen, China, for both the European and Asian markets, but Cook was unable to confirm that this was still the case. IBM opened up a Power Systems refurbishing operation in China last March and has been making entry and midrange Power Systems gear there since the fall of 2010. IBM closed down its high-end Power Systems and mainframe factory outside of Dublin, Ireland, in May 2010 and moved it to Singapore.

The transition of manufacturing from Rochester to Guadalajara will take perhaps a year to accomplish, maybe a little bit more. And it is unclear what effect this change will have on “Made In America” provisions in some government contracts. I am not a lawyer, but in many cases a business partner could probably do some final configuration changes on a Power Systems box and qualify. I am all for manufacturing here in my home country, but these rules rarely work out as intended is my guess.

I think you need to manufacture and design in the same place, and it is a wonder why Big Blue doesn’t see this. This is one of the reasons, in fact, that General Electric just announced that it was moving manufacturing operations for water heaters and fancy schmancy refrigerators back from China to the United States. There are a lot of reasons for this, but labor and energy costs relative to the United States are a lot higher than they were a decade ago.

The Rochester facility, which is one half the size of the Pentagon and which sits out on Highway 52 (you didn’t think that 5250 came from nowhere, did you?), had a peak of around 8,100 employees back in 1990, when this case study about the facility was published. By 1999, it had around 7,000 employees, and in 2007, that had dropped to around 4,400. That was the last time anyone had a sense of how many people worked at Rochester.

The Rochester plant will continue to manufacture BlueGene parallel supercomputers and there will still be systems engineering and prototyping work done there, as well. And as far as I know, no one is talking about moving the legendary and award-winning IBM i technical support operations out of Rochester. The thing to remember is that Rochester is a kind of mini-IBM, and manufacturing hardware is just not that important to the top brass. I don’t think they are correct, but that is what I think they believe.

IBM did not talk about how many workers would be cut in the wake of the manufacturing change, but KTTC, the local TV station in Rochester, cited sources in its report on the IBM layoffs that around 200 full-time workers would be impacted. As far as I know, there are also an unknown number of contract workers affected by the manufacturing shift. IBM has not said how many employees–or how few, depending on how you want to look at it–are located at the Rochester facility. So we don’t know how big of a hit this is.

Bootnote: After this story originally ran, Lee Conrad, who is in charge of the Alliance@IBM effort to unionize IBM workers in the United States, emailed me to say that sources within the Rochester plant tell him that the facility has 2,800 full-time employees. And a follow-on report at KTTC said that insiders told the TV station that 200 full-time workers and 150 part-times would lose their jobs because of the decisions to move operations from Rochester to Guadalajara and Pokie. And there will be ripple effects in Rochester because suppliers have companies and employees in the region surrounding the plant–and sometimes in it.

IBM has not divulged how many employees it has in the United States for many years, but Conrad estimates it to be around 92,000, down from 133,789 in 2005 and from over 200,000 in the early 1990s, before Big Blue had what former CEO Sam Palmisano called its “near death experience” when it did not see the mainframe cresting and the rise of RISC and PC servers. The AS/400, of course, was one of the bright points during the trying time, with record midrange system sales despite a recession.

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