The IBM System x Series: Strategic Again


Ever since IBM sold its PC division to Lenovo, there has been the belief that that sale would be the first of two dropped shoes, the second being the X86 server division, also known as the System x Series of products. For much of the time after the acquisition closed, and capped by a licensing deal for server technology to Lenovo, IBM seemed to be drifting in that direction, which has an increasingly adverse impact on morale for the group and its ability to execute.


I spent several days with the IBM System x team, many of whom I've known for some time from my PC Company days and, while I can't discuss the specifics of what they showed us, I can give you a sense of their morale, importance to IBM, and their ability to execute. This has been an interesting trip for me because, like many, I wondered if this group, which is tied to the X86 platform, would be around much longer or would be sold off as the IBM PC Company had been. The standing and largely competitor-driven belief is that System x couldn't compete with the other major players because it lacked the x86 focus that most of the others had. Let's look at the System x team from three aspects: morale, strategic importance, and ability to execute.


System x Morale


You would think that any company could cover up morale problems relatively easily. I remember years ago going to a DEC workstation briefing that actually impressed me a great deal and started me looking more closely behind the curtains. During the briefing, the executives were competent and on topic but, in hindsight, didn't seem to be passionate. While walking away from the presentation, the Analyst Relations specialist asked me if I knew of any openings at other firms because everyone in this DEC division was anticipating massive layoffs and looking for jobs. This put the lack of passion in the presentation into perspective. As a result, one of the first things I watch during a pitch isn't the content but the passion of the people making the presentation. I was pleased to see that, with few exceptions (and there are always those that are simply doing a job) the presenters were passionate. They seemed to bubble over with excitement and really care about their offerings. These generally weren't folks chatting up the company during the day and looking for a new job at night; these were folks that really believed in what they were doing and were fighting for their division to succeed. Morale, at least from my admittedly limited view, appeared very strong and much like it is in other parts of IBM that are more dominant.


Strategic Importance: Cloud Burst


I spent about 10 years at IBM myself, and you can generally tell when a division is going to be shut down or spun out. They stand alone, cross-company collaboration is curtailed, and high-profile strategic efforts bypass the group. So here you look for something that ties the division in with a strategic effort -- and there is none in IBM more strategic at the moment than cloud computing. CloudBurst is IBM's appliance approach to cloud computing. In some ways leading what companies like Oracle (Snorkel) are now advocating, this idea of a packaged cloud is gaining some traction since it appears few either fully understand or can articulate what a cloud solution is or how to build one. While generally focused at the mid-market, which is where x Series is most popular, this cuts across hardware, software, and services and is presented as an IBM, not a System x, offering. This satisfies the Strategic test, though it is also clear that IBM has been shifting executives around and one of their top people, Adalio Sanchex, is now running the unit, which also supports the premise that it is once again strategic to the corporation.


Ability to Execute: Innovate


The x86 server market is awash with me-too offerings largely competing on price. IBM has a significant percentage of the high end of this market but is well behind in overall volume. However, on the PC side, Apple has a similar profile and the end result is typically better margins in exchange for lower overall revenues and market share. To maintain this premium position and to start to push down into higher volume offerings, IBM needs to be able to innovate and market those innovations out to potential buyers so they value and will pay a premium for them.


The economy of scale disadvantage for IBM here is real, much like it is for Apple in its segment, and there are three areas where IBM could differentiate itself: cooling, off chip performance (tuning), and reliability. IBM has historically had the ability to address tuning issues going back to the mainframe but often drifts into areas that can make its platforms too different from others it has to interoperate with. This is probably the biggest danger faced by this unit, which must maintain a very high level of interoperation to avoid locking itself out of much of the market. Here, the resources it has acquired from the IBM PC company help a great deal because these people understand this dance better than most and can resist what is a common IBM trend -- to trade off interoperability for some lesser advantage.


Being fault tolerant is something only truly understood by a few vendors including HP, EMC and, fortunately, IBM. Here too, IBM has the pedigree to stand out in an ever-more-generic market. Finally, cooling, particularly liquid cooling, is something that IBM has been working with for decades and it likely has more intellectual property focused at this problem than any other vendor. This could, however, be as much of a problem as a benefit because I'll bet it has literally forgotten more than any other vendor knows in this area. Discovering some of this technology it already owns may prove difficult.




IBM as a company is engineering driven, and this division is no exception. This was made clear during presentation after presentation that was long on technological advantage but short on buyer benefit. This is a lesson that the System x folks need to really grasp from Apple. It doesn't really matter if you have an advantage if few buyers know of it, or understand why it is important to them. Fortunately, this entire segment is so engineering driven that I often wonder if there is a single company in it that can spell "marketing." Even Apple, which has a server line, hasn't figured out how to market it successfully and is pretty much a non-player in the segment. Still, if IBM can figure out how to present its advantages, it should improve its position in this segment.


Wrapping Up


Overall, it is clear that System x is strategic to IBM, morale is very high with the IBM troops assigned to the unit, and they do have the ability to execute, but would be helped a great deal by a better balance between engineering and marketing. This last is offset by the fact that I could accurately say this about every company in the segment, including Apple, which has been little more than pathetic here, compared to how well it does in other areas. I left believing that, whatever else, System x is now stategic to IBM again and prepared to fight hard in this segment with the full support of the rest of the company and strong leadership. In this market, all of this is important.