Paul and Thread - Article on how IBM Netfinity (Xeon Based) Server Division is making a comeback.
Note: Article does not specifically mention that Netfinity line is Intel based.
zdnet.com
PC servers boost struggling IBM hardware group
By Lisa DiCarlo, PC Week Online
January 14, 2000 10:50 AM ET
A renaissance of IBM's once-moribund PC server business is driving its Personal Systems Group back to profitability after a two-year swoon.
Just 24 months ago, IBM's PC servers suffered from inferior design, high prices, a lack of leading-edge technology and a sales force that viewed the products as an afterthought to higher-margin enterprise servers.
The poor-selling PC servers, combined with a declining desktop PC business, contributed to a whopping $992 million loss for PSG in 1998. Through the first three quarters of 1999, IBM lost about $311 million in personal systems, according to its financial records.
Second in worldwide PC server market share in 1997, IBM has since fallen to the No. 4 spot behind Compaq Computer Corp., Dell Computer Corp. and Hewlett-Packard Co., according to International Data Corp. in Framingham, Mass.
After combining its Netfinity development team with its enterprise group in 1998, however, IBM began a remarkable turnaround. Its PC server business is now outpacing competitors in revenue growth, and IBM officials claim PSG will return to profitability in the first half of this year.
"It's a legitimate revival," said Jonathan Eunis, an analyst at Illuminata Research Inc. "A lot of it has to do with the systems being good -- no, great."
Critical time for Big Blue
The change comes at a critical time for IBM's hardware business. When IBM reports its year-end financials next week, analysts expect a major downturn in revenues for midrange and mainframe systems. IBM hopes to jumpstart enterprise server sales by refocusing the group's Internet software efforts around Linux.
For now, however, IBM's PC server business has emerged as the hardware organization's one shining light. The company hopes to brighten its outlook further this spring with a line of rack-mounted Web servers and a line of server appliances, targeting ISPs and Internet companies.
It also plans to partner with service and software providers such as Novell Inc. to co-develop, market and sell low-cost, fixed-function servers. In addition, IBM will implement a subsidizing program for ISPs and small companies later this year.
Turnaround time
IBM's formula for the PC server turnaround was simple: It looked inward. "We started viewing [and developing] Netfinity as the fourth IBM enterprise server," said John Callies, vice president of marketing and Netfinity chief. "We were not [capitalizing] on the opportunity we had."
By moving the Netfinity team to the enterprise group, developers had access to high-end technologies from high-end RS/6000, AS/400 and S390 systems.
The 18-month-old program, referred to as X architecture, already has spawned new ESCON (enterprise systems connection) adapters, an SP2 switch and Parallel Sysplex clustering technology for the company's Windows NT-based Netfinity servers.
IBM will continue the trend this year with new hot swappable memory, hot-add components, online diagnostics and partitioning for 8-way servers. Kalais says IBM will incorporate certain X architecture technologies into entry-level servers this year.
The technical distinctions are beginning to pay off, with IBM winning huge customers like Bank of America, which switched from Compaq Proliant to Netfinity servers about a year ago.
"Every time we deploy a Netfinity, we get 99 percent uptime, compared with [about] 94 percent with Compaq," said Matthew Hall, vice president of large systems automation for the bank, in Richardson, Texas.
"We chose IBM because they took the best of S/390 and RS/6000," he said. "That's why they're in the data center." A major benefit: the ESCON mainframe adapters, which maintain connectivity with about 120 mainframes at the bank.
Stiff challenges ahead
To be sure, IBM faces challenges in maintaining its recent momentum. As it migrates high-end features down to its PC servers, high-performance products like the Netfinity 4000R start to overlap with higher margin AS/400 servers.
Secondly, IBM still faces a cost disadvantage with Dell. And Compaq's recent acquisition of Inacom's direct distribution business could enable the Houston PC maker to lower costs through more efficient distribution in inventory tracking.
If IBM is to reach Callies' goal of being No. 1 in market share, it will have to sell larger quantities of lower-priced systems, a formula that has proven elusive.
"[Server] appliances level the playing field," said Vernon Turner, an analyst at IDC. "It will be very difficult for IBM not to enter a price war when they go into the appliance space."
Another key, according to analysts, is for IBM to more effectively leverage software integration -- its own and third parties. For example, Bank of America's Hall says he would like to see a deeper integration of Netfinity servers with management software from IBM's Tivoli division.
"They win when they sell computing [solutions], they lose when they sell computers," said Illuminata's Eunis.
Another critical factor is selling Netfinity as a Web server to compete against the likes of Sun Microsystems Inc. Simply put, IBM must appeal to more customers like Tony McAlister, vice president of information services at Buy.com in Aliso Viejo, Calif.
Buy.com is running its business -- selling computers and electronics over the Internet -- almost exclusively on NT-based Netfinity servers. McAlister says IBM's clustering on 8-way systems makes that possible.
"When you're an Internet company," he said, "all you are is a bunch of servers." |
