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IBM TO MAKE NEXT GENERATION z10 MAINFRAMES FROM POWER FAMILY CHIPS

IBM has decided to fold its mainframe processor chips into the Power family, much the way it moved its AS/400 engines into Power architecture years ago. IBM says the mainframe versions of the Power 6 or p6 chips, which it calls z10 when the result is a server not just a chip, will have some unique features.

It is very hard to predict the timing of an official announcement, but Big Blue has been conducting customer briefings since last August.

The IBM slide show is here (warning: 2 meg download) and our preliminary analysis is here.

With mainframe sales in a sharp dip as the financial sector firms that buy so many putting all capital equipment acquisitions on hold, IBM may have to act more quickly and more decisively than it would under more propitious conditions.

PLATFORM SOLUTIONS ANSWERS IBM COMPLAINT, COUNTERSUES

Platform Solutions, Inc., (PSI) has not only responded to IBM's intellectual property infringement complaint, but also countersued.

The defensive portion of PSI's court filing basically asserts that the patent infringement claims made by IBM are invalid and additionally sketches out the details of its position.

The countersuit accuses IBM of going back on explicit and implicit promises to license software for use on PSI servers, based on a principle lawyers call promissory estoppel. In addition, PSI alleges that IBM's insistence on licensing its software only to persons who have purchased IBM servers is tying. Tying, forcing a buyer to acquire one product in order to purchase another when the buyer really only wants the second product, is illegal under US antitrust laws. However, these laws only apply if the complainant can show that the party alleged of tying is a monopoly that is abusing its position with the act in question.

In the past, IBM has successfully deflected antitrust claims by proving that it does not have a monopoly in servers, which it says is the relevant market for antitrust considerations. But IBM's prior tactics may not apply to this case, which is about software rather than plug-in peripherals.

We have produced a more detailed discussion of this matter and in that essay we provide a link to the actual court document filed by PSI as well as other material that is relevant to the matter.

IBM will soon respond to PSI's claims, and that response may well have implications for the Flex-ES emulation system and Hercules open software mainframe emulator.

IBM SUES PLATFORM SOLUTIONS, HALTS LICENSING OF FLEX-ES EMULATORS

IBM has taken steps to curtail two mainframe emulator systems.

IBM has halted licensing of key patents to Fundamental Software, blocking the use of IBM software on Fundamentals's Flex-ES mainframe emulators, effective November 1. The X86-based systems were popular among developers and end users; hundreds are in use. IBM's decision to halt future licensing will not directly impact the installed base, which will continue to enjoy the use of any software licensed under agreements in force at the time of installation.

IBM also has filed suit against Platform Solutions, a company hoping to launch a mainframe emulator that runs on Itanium platforms. Some details of the matter are available here.

Flex-ES boxes are mainly used by shops that require under 50 MIPS of processing power and include versions that run on laptops. IBM hopes to sell low end z9 mainframes to some of these small shops but it has no portable alternative for use by software developers and support personnel, a niche that was filled by products from resellers of Flex-ES.

Platform Solutions has some test machines installed at end user locations, but as far as we know has not actually sold any. Until the litigation began, the company seemed to be aiming for a commercial debut during the first quarter of 2007. Platform maintains that IBM's claims are without foundation, so it could still make a formal product announcement despite the legal cloud obscuring its position. But for now IBM has said it will not license its software for use with the Platform boxes, and that refusal puts Platform in a bind.

RESELLER WHISPERS UP PLATFORM SOLUTIONS PCM MACHINE

T3 Technologies, which says it is the top distributor of Flex-ES based emulated mainframes, is getting ready to offer a plug-compatible system. The machine, which it calls Liberty, is based on software and firmware from Platform Solutions (see our related essay).

T3 Liberty
Platform Solutions firmware and software, HP Itanium hardware

So far, T3 hasn't gone public with its plans, but it has circulated a promotional flyer in which the IBM Business Partner describes itself as "the other mainframe company." Officially, neither T3 nor Platform Solutions seems to be talking about their relationship, which is just as well. T3 bills the machine as a PCM offering built on HP Itanium hardware, which is one way to look at things, while Platform Solutions says its position is that whatever it makes using its code is a PSI machine, regardless of whose hardware is inside the box. A third interpretation may emerge if a deal between EDS and Fujitsu goes ahead. As we understand it, EDS wants to offer Platform Solutions' software and firmware running on Fujitsu Itanium servers as the equipment in its services deals.

To make matters more complicated, T3 seems to be saying it will not only offer the product in its American home market, but also in the EU from offices in the UK, Germany, and Italy. The machine is built to run on 200-240 volts and 50-60 Hz current, so it can work more or less anywhere.

For now, T3 is not talking about MIPS, but the photo it offers suggests a machine with modest power, a box that may overlap its Flex-ES line on the low end and small IBM mainframes on the high end. Our guess is that the four-way Itanium server pictured in the promotional material will yield something like 200 MIPS while running in mainframe mufti. Platform Solutions wants to sell small boxes as well as larger machines directly, providing servers that may range from under 100 MIPS to 2,000 MIPS and possibly higher.

But it all remains kind of iffy. PSI is still perfecting its 64-bit mainframe functionality and has only put boxes that provide 31-bit addressing into field tests. IBM is saying nothing about whether it will let PSI users license its software under general commercial terms, as it did in the case of other plug-compatible vendors. And, with the exception of L. L. Bean, none of the end users who have been testing PSI systems wants to talk about the machine or the deals with IBM under which software has been licensed.

LIKE KATRINA: THE GROUND FLOOR SINKS OUT OF SIGHT

On September 27, IBM said it was going to stop selling software under what it calls the ESL (Entry Systems Licence) plan at the turn of the year. ESL is a scheme under which users can pay one-time charges for a long list of IBM systems software and middleware if their platform runs at no more than 8 MIPS. It is only offered on a handful of platforms, including the 3006 Integrated Server and low end emulated mainframes running Flex-ES.

An 8 MIPS mainframe may sound puny, but for dozens of users who still have small 2003 systems, and for users with larber mainframes who are trying to downsize, an 8 MIPS box is a valid platform. During the IBM 370 era, the largest machine IBM made, a model 168, ran at less than a third this speed, and it did a lot of bookkeeping. None of the 303X line ran this fast, either. IBM didn't get past 8 MIPS until it built the 308X line.

When ESL is gone, the cheapest software deal IBM offers will be the special GOLC pricing that is associated with emulated mainframes. The least powerful machine for which IBM offers this deal, which prices software at around a third the rate charged for a 60 MIPS Multiprise 3000, runs at roughly 20 MIPS using Flex-ES emulation code on an Intel-based server. Even that option might not last long for new users. IBM's decision on ESL could be the first of a number of annual reviews that eliminate software deals aimed at the slowest (and oldest) mainframes still in use.

Because IBM's smallest mainframe users can still get ELS deals until January 1, and there might be a small flurry of migrations as users with 8 MIPS workloads try to locate suitable equipment while the getting is good.

COMMON MEMORY AT $25 TO $30 PER GIGABYTE

Memory stick prices are very attractive, making it easy to equip PCs and servers with ample capacity to support the latest softoware. The popular 533 MHz DDR2 modules seem to be retailing for $25 to $30 per gigabyte. Dual channel technology is priced at the high end of this range, while single channel sticks are somewhat cheaper. Modules rated at higher speeds, such as 800 MHz, cost a few bucks more. Laptop memory is considerably more expensive, with SO DIMM sticks running $60 to $70 per gigabyte.

Our bellwether memory dealer, McDonald and Associates, in Omaha, has been selling parts at these levels in small quantities and appears to be willing to talk about price to customers who are looking for sticks by the dozen.

The more sophisticated types of error correcting memory used in midrange servers can cost more than standard PC memory but still can be a lot cheaper on the open market than when it is purchased from a server vendor. Customers usually don't shop the third-party market for memory when a server is very new but instead look for bargains when they are trying to stretch the life of an older server by another year or two. More often than not, a little bit of shopping can yield a lot of savings.

IBM POSTS BIG FIRST QUARTER GAINS ON SERVICES AND SOFTWARE

A mix of favorable currency translation, momentum in software and services, and good margins enabled IBM to report a 26 percent jump to $2.3 billion in pre-tax income for the first quarter, a gain from last year's unimpressive $1.8 billion figure. While there were a couple sticky spots, IBM said it felt the strong start to a year that is challenging many companies indicated that 2008 as a whole will be fine for Big Blue. The company reased its full-year profit forecast to $8.25 per share from $8.00. Investors were thrilled with the news and immediately bid up the price of IBM shares.

Big Blue showed its strength was indeed global. IBM said it did very well in Asia, with reported revenue up 14 percent, although Japan presented some challenges. Europe (combined with Middle East and Africa) looked even brighter, with revenue jumping 16 percent, but as was the case in Asia, three-fourths of the reported upturn was due to currency translation. Business in the Americas rose 8 percent, nearly all of it measured in dollars, and bringing IBM more constant currency growth than analysts had expected in the current climate of bad business news and turmoil in key financial markets.

The one concern that continues to cast a shadow over IBM's future is softness in hardware sales. Mainframe revenue was fine; intake jumped 10 percent on the introduction of z10 machines. Sales of storage subsystems grew at a similar rate. By contrast, servers in the Power-based p line were up only 2 percent, X86 server revenue was flat even with beneficial currency translation, and revenue from computers using legacy System i processors was off 21 percent. IBM's OEM technology business, which depends to a significant extent on the game console market, was down by 20 percent.

IBM's software business grew on the back of acquisitions, notably the purchase of Cognos, but also continued to show growth from products already in the IBM portfolio. IBM said that there was softness in operating systems revenue, a direct consequence of the sluggishness the company has experienced in processors. The jump in mainframe shipments was apparently not big enough to offset slow sales of other platforms. It is also possible that a larger slice of the IBM mainframe MIPS business, which IBM said rose 14 percent in the quarter, is based on processor cores that don't generate z/OS operating system revenue. IBM says, without providing precise detail, that its sales of specialty engines for running Linux, DBMS, and Java keep growing.

It is hard to see how IBM can feel secure about its services and software operations unless it also can keep its hardware business growing. IBM is not a leader in Unix software except where its AIX platforms are concerned. In the X86 market, which is huge in terms of footprints even if it is small in terms of its contribution to IBM's hardware profits, IBM cannot beat Microsoft in Windows country and it does not have the kind of corporate culture that can feed itself off the Open software market. IBM needs to keep selling big ticket services deals and big ticket software products to large enterprises that favor IBM computing equipment.

Nevertheless, IBM says that it expects a prosperous 2008. The company is well aware that it has to execute well as it rolls Power 6 technology across its p and i server families. From the tone of its first quarter remarks, it appears that IBM's management has received very encouraging reports from the field about the reception its new and forthcoming systems will receive.

IBM FIRST QUARTER 2008 PERFORMANCE BY SEGMENT

REVENUE CATEGORY	EXTERNAL REVENUE	INTERNAL REVENUE	TOTAL REVENUE	PRE-TAX INCOME	PRE-TAX MARGIN
Systems & Technology	4,219	195	4,414	145	3.3
Percent change	-6.7	-27.1	-7.8	50.7
Global Technology Services	9,677	388	10,065	988	9.8
Percent change	17.2	-8.7	15.9	45.1
Global Business Services	4,911	259	5,169	579	11.2
Percent change	17.4	-14.5	15.3	23.4
Software	4,847	667	5,514	1,267	23.0
Percent change	14.0	14.1	14.0	22.3
Global Financing	633	386	1,019	388	38.1
Percent change	3.0	10.7	5.8	26.8
Total for All Segments	24,286	1,894	26,180	3,368	12.9
Percent change	11.3	-1.7	10.2	26.8
Eliminations/other	216	1,8942,077	-1,679	-170
Total	24,502	0	24,502	3,198	13.1
Percent change	11.2		11.2	24.0

The Eliminations/other line reflects an adjustment for activities that involve sales among IBM divisions that later yield sales to customers.
NM: Not meaningful

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