IBM Creates New Power, SMB Server Divisions

July 23, 2007 Timothy Prickett Morgan

For the past decade and a half, IBM‘s two midrange server lines–formerly the AS/400 proprietary server line and the RS/6000 Unix server line but now known as the System i and the System p, respectively–have been on a course to merge. First, they started supporting similar APIs, then similar Power processors, then the exact same hardware, including Power processors, memory, disks, and other peripherals. Then, they started supporting each others’ respective i5/OS and AIX operating systems. It would be logical to assume that eventually the System i and System p brands would eventually fall by the wayside and there would be just one Power server line.

That’s not the way it has worked out, however. Having done a little research with customers, partners, and its own sales channel, the top brass at Big Blue has decided to organize the development and marketing of these two system lines in an entirely different–but equally logical–manner.

Bill Zeitler, the senior vice president in charge of IBM’s Systems and Technology Group, announced some changes in the structure of the System i and System p businesses in a memo to STG employees, which I have obtained. (You can read that memo here.) In short, IBM is breaking the System i business into two pieces, leaving one piece as a standalone division that is focused on the small and medium business market and peddling its entry Power-based servers running its i5/OS operating system and merging the high-end System i business to create a dedicated high-end Power server business that supports AIX, i5/OS, and Linux operating systems.

The new Power Systems division inside STG will be run by Ross Mauri, a long-time head of development for IBM’s mainframes, then its e-business on demand effort, then STG’s overall server development, and lately its general manager for the System p division. (Mauri took over that position from Adalio Sanchez in January 2006.) The Power Systems division will marry the System p line, which will retain its brand name, with the high-end of the System i line, which includes the System i 570, which spans from two to 16 processors in a single system image, and the System i 595, which spans from four to 64 cores. Currently, the System i line is based on the Power5+ chip, most of the System p line is based on the Power5+ chip, and the new System p 570, announced in May and shipping in June, has been retrofitted to support the Power6 processor. Mark Loughridge, IBM’s chief financial officer, said in a conference call yesterday discussing IBM’s second quarter financial results that IBM would slap a System i brand on this retrofitted System p 570 and ship it running i5/OS in the third quarter. The word on the street that this announcement is imminent, in fact. IBM is expected to begin rolling out a whole new Power6 server product line sometime this year and into early next year, revamping the Power systems from top to bottom, and including blade servers for the first time with the flagship Power chips. BladeCenter blade servers have been relegated to running PowerPC 970 and PowerPC 970MP processors up until now, but the future blades will use Power6 chips. The Power4 and Power5 generations of processors were too hot to use in blades.

By merging the high-end System i product line with the entire System p product line, IBM hopes to create a single, enterprise-focused division for promoting the use of Power servers and its AIX and i5/OS operating systems, plus Linux, as well as its DB2 and DB2/400 databases and WebSphere middleware. While IBM sells a full line of System p entry and midrange servers, IBM’s real traction in the Unix market has been with big boxes which have for years yielded a lot more bang and more value for the dollar than other high-end Unix servers from Sun Microsystems, Hewlett-Packard, and Fujitsu-Siemens. The trend toward virtualizing server environments and consolidating physical servers onto virtualized server slices plays into IBM’s favor, and will particularly do so when bigger Power6 systems ship with AIX 6 and i5/OS V6R1, which can in theory support up to 1,024 logical partitions and have about twice the aggregate performance of the current Power5+ systems.

The remainder of the System i business, which includes i5 520 entry machines and i5 550 midrange machines based on Power5+ processors as well as the new user-priced i5 515 and 525 entry servers, is now under the control of the Business Systems division within Systems and technology Group. (And yes, people will probably not be able to resist the temptation to shorten this to the IBM BS Division.) The Business Systems division will have Marc Dupaquier as its general manager, and he will work with the other general managers in IBM’s Software Group and Global Services businesses as well as with Rod Adkins, the senior vice president in charge of development and manufacturing for Systems and Technology Group, to create products that extend the use of entry and midrange i5/OS platforms among SMB customers.

Dupaquier was formerly vice president in charge of marketing for IBM’s Software Group, and in January of this year was named general manager of IBM’s Small and Medium Business Systems within STG. This was a cross-divisional position within STG, and now Dupaquier has the entry and midrange System i products as the core of a truly independent and dedicated SMB unit.

The goal of the Business Systems division, says Zeitler, is very simple. “This team will focus on the SMB client segment. Its mission will be to extend System i capabilities to ensure continued relevance to SMB and build on its integrated, easy-to-use value proposition. Going forward, Marc will work with Rod Adkins and the brand GMs, as well as with Software Group and GTS, to develop and drive a consistent roadmap and value proposition extending across all of our SMB server, storage, and blade offerings.”

Mark Shearer, who has been general manager of the System i division, managing marketing and development for the product, has been named vice president and business line executive for the Power Systems division, reporting to Mauri. However, he will be the top executive responsible for the i5/OS platform as well as having sway over the course that AIX platforms take on the high-end. Shearer will also be the front man for the System i community, continuing in his role as that platforms main advocate to customers and within IBM.

IBM wants an SMB-focused customer unit because the company’s share among these customers has dropped over the decades. While IBM is pushing up towards a 40 percent share of the high-end server market, the company’s share of server sales to SMB customers–which amounted to $32 billion in revenues in 2006–was around 15 percent. “Our goal is to grow our share in SMB over the next decade to match what we have in the enterprise segment, where we have well over 30 percent,” Zeitler said in his memo.

As I have said for many years now–and before IBM itself started bragging about it–about half of its 500,000 corporate customers worldwide use its OS/400 and i5/OS server platforms, and most of those customers do not buy large AS/400, iSeries, or System i machines. They buy small boxes, and they run either home-grown or third party ERP applications on them. This base has never been the largest revenue generator for IBM, when looked at merely for sales of AS/400, iSeries, or System i platforms. But these SMB customers have historically spent a lot of money on IBM PCs, storage, printers, maintenance, and other products like X86 and now X64 servers.

According to IBM’s most recent data, which former System i general manager Shearer discussed with me back in April, for every dollar these customers spend on System i products, they spend three dollars on Wintel products. Hence, IBM’s decision to take the entry and midrange System i line and use it as a focus for attacking the SMB market. Historically, long before there was commercial Unix or usable Windows servers in the midrange, the IBM System/3X and then the AS/400 product lines were what companies with $10 million to $100 million in annual sales chose more times than not to run their businesses. It remains to be seen if the customer-centric focus that IBM is bringing with this new organization can boost System i sales at SMB shops. As Shearer explained then, IBM wants to boost its share of the IT pie at these shops, selling more products and services. That means consolidating workloads onto entry System i platforms in some cases and deploying new applications on System i platforms in others, but it also means being happy to make any sale IBM can to take money away from HP, Dell, Sun, and others.

As part of this restructuring, Zeitler is taking control of an integrated channel approach to reach STG customers. Starting on July 1, IBM is integrating its STG, Global Technology Services, and business partner channel management teams into a single, integrated team. Now business partners selling systems have one interface into IBM instead of several. Similarly, SMB customers will see a new integrated IBM-partner channel so they do not get hammered by different IBM reps and business partners selling point solutions. Each sales territory for STG will be assigned a SMB systems sales manager, who will orchestrate what solutions get sold to what customers and who does the selling. IBM will need the next six months to roll this new integrated, SMB-centric sales approach out across its global regions. Enterprise customers will see a different set of partners and get the same kind of hand-holding they expect from Big Blue and its partners. IBM is also working to get products and their terms and conditions aligned across its various server lines through this integrated organization.

IBM’s System z mainframe and System x X64 server lines (which include rack and tower servers as well as the BladeCenter blade servers) are unaffected by this announcement. So is IBM’s storage business, which is tucked up inside Systems and Technology Group. These units will coordinate with the Power Systems and Business Systems divisions as necessary, of course.

In the long run, given the propensity of SMB customers to deploy Windows servers, the Business Systems division should probably also include all or most of the System x business. This would be logical. And to be consistent, it would also be logical to add in entry and midrange Unix servers bearing the System p label, too. And, to be consistent, IBM would also have to work on bringing the integration approach of the System i line–which includes an operating system, a database, application servers, and development tools all in one integrated platform–to its entry and midrange Windows, Linux, and Unix offerings. But, for the sake of the System i business, it is probably a good thing that this has not happened yet. Integration and the ability to run legacy applications alongside Java, PHP, and other modern applications is what is keeping this business alive.

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