looks like the link expired but fortunately SI never forgets..
from Forbes Magazine.
IBM blames its weak sales on the millennium. The bigger problem is a certain competitor in the server business.
Y2Many
By Daniel Lyons  Next
IT MADE LITTLE SENSE IN SEPTEMBER when IBM Chairman Louis V. Gerstner Jr. tapped services chief
Samuel Palmisano, the insider most likely to succeed
him, to run IBM's server business. Why take the head of a booming $33-billion-a-year unit and have him run a $9
billion division that schleps big iron to banks
and insurers?
The answer emerged in October: IBM's server business is in serious trouble. Revenue from mainframes, which
account for 40% of IBM's server business, plunged
40% in the third quarter and will be hurting for the next two quarters. Enter Palmisano, 48, IBM's best closer. A
26-year insider, he took over IBM's booming
services business in early 1998 after a 22-month stint running the PC division. Palmisano won't talk about his plans
for reviving the server business. It will be a
struggle.
The party line in Armonk, N.Y. is that customers have frozen orders to buckle down for the Y2K changeover.
That is partly true--but companies are still buying
plenty of computers, especially to open up shop on the Web. Hundreds of new, power-hungry accounts, the
dot.coms, are installing new iron, too.
They're buying the iron from Sun Microsystems. Despite IBM's drive to make itself the king of e-business, Sun, in
Mountain View, Calif., has the more legitimate
claim to the throne. "IBM has a problem, but it's not Y2K. It's called Sun," says John Shoemaker, who runs Sun's
server division. Hard numbers on Web market
share are difficult to come by, but a recent survey of Internet service providers found that 13% chose Sun as their
primary server vendor; only 3% chose IBM, says
International Data Corp., a research firm based in Framingham, Mass.
Sun's Sparc servers are powerful, reliable and cheap, and Sun has done a better job of marketing to Internet
shops. These days a set of slick new Sun servers is part
of the Web pose, like Doc Martens and Buddy Holly eyeglasses. Even some longtimeIBM mainframe accounts use
Sun when they buy new gear to run budding
ventures on-line. That could bode ill for IBM's growth long after Y2K has played itself out.
At Exodus Communications, which runs data centers where companies keep their Web servers, about 90% of the
1,700 customers use Sun servers. Only one
customer uses an IBM mainframe, and none uses IBM's RS/6000 Unix server, says Ellen Hancock, a former top
IBM executive who now is chief executive at
Exodus, based in Santa Clara, Calif. "Sun pretty much owns the back end," she says.
"The Sun servers simply do not break down. They're like a Honda. Nerds like that."
Lower cost was one reason Ford Motor Co., a big IBM mainframe customer, turned its back on IBM when it
went into e-business applications. Ford still adds to
mainframe capacity, but spending on Sun's Unix systems is growing significantly faster, says George Surdu, a tech
director at Ford in Dearborn, Mich.
Chase Manhattan Bank, also a big IBM user, isn't spending much money on mainframes this quarter, but the bank
recently bought eight Sun E6500 servers, which
sell for up to $1 million each, and two Sun E4500 models that sell for $100,000. Most of Chase's Internet systems
are running on Sun, says Gary Moore, chief
information officer at Chase Manhattan Mortgage Co.
Some IBM customers are switching to Sun for core functions. When Allstate Corp. installed an SAP system, it
used Sun servers and phased out part of its
IBMmainframe lineup, says Richard Harris, an assistant vice president at the $26 billion insurer in Northbrook, Ill.
The Web surge has helped Sun gain in sales of $1 million-plus systems. Its share of that segment is up three points
to 9% in just the first six months of this year. IBM
also picked up a few points in the same period, to 43% , but its share most likely will decline by year-end, says
Steve Josselyn, an analyst at IDC.
To be sure, some customers are avoiding hardware purchases as the year closes--but this isn't exactly a surprise.
"IBM's reps sit in on our meetings. They always
know where we're going," says Rhys Godwin, Y2K program coordinator at UniGroup, parent company of United
Van Lines and Mayflower Transit, in Fenton, Mo. |
