Sunday, October 26, 2008

Reserve some "Whoa"!

Picking up a newspaper from under my hotel door the other week, I saw an advertisement by Hertz promoting their latest car offering – a bright “velocity-yellow” Corvette. Under the picture (shown above) was the caption: Reserve some Whoa! As most readers know by now, anything with a picture of a ‘Vette will always catch my attention, and later that same day, as I passed by the Hertz lot, there were five of them lined up waiting for customers to pick them up.

Hertz is a GoldenGate user, with GoldenGate supporting their mission critical applications on NonStop, and over the years I have seen Hertz’ folks attending user conferences and events. While I can only guess at the types of the applications running on NonStop, I have to believe that each time I reserve a car some part of the transaction passes through a NonStop.

However, what did surprise me was, that as I was paging through earlier postings researching items for this post, I came across the May 31, 2008 posting “Heading for the exit!” where one of the photo’s I included was of my ‘Vette leading a bright velocity yellow ‘Vette at Willow Springs raceway. This outing was on the weekend of May 24 – 25, 2008, and on that Sunday I recall seeing this car pull into the pit area and it puzzled me as I didn’t recognize the badge on its fender – HZH!

Hertz had launched this “Reserve some Whoa” program only a few days before the event at Willow Springs, but a participant had managed to pick one up. I have seen racing drivers looking for an edge, and working hard to close any competitive gap, but turning to a rental car company was not an approach I had expected. Talk about reserving some Whoa! Hertz certainly had the mortgage on that theme, and the car performed well out on the big track - even for an automatic.

These days it has become very difficult gaining any kind of competitive edge – and whenever a gap develops, it’s often difficult maintaining it no matter how many years go by. As a youth, living close to Sydney harbor, I developed an interest in sailing and when Australia first challenged the United States for the America’s Cup, the excitement it generated was unlike anything seen before. Back in the late ‘50s, Australia’s then newspaper-baron, Sir Frank Packer, put together a challenge and in 1962 his yacht, “Gretel”, arrived in Newport, Rhode Island.

At the time, very few yachtsmen in Sydney even knew of the America’s Cup or of the tradition behind it. None of us truly appreciated what Sir Frank was going up against – almost 150 years of exclusive ownership of the revered “auld mug”! And once Gretel was in the waters off Newport, she had the audacity to win a race – the first win for team sailing against the US under the then-current 12 meter formula. However, the US went on to win the series.

In 1983, Australia II was launched and it went on to win 48 of the 55 races it sailed that year, including the finals of the America’s Cup, ending the longest winning streak in sporting history. Probably the smallest 12 meter yacht ever built, Australia II simply “out-technologied” the incumbents – a feat thought impossible by everyone in the yachting community. And it came back to win from being down 3-1 (very reminiscent of the modern-day Red Sox) in a best-of -even final. Australia II’s secret “winged keel” gave it an uncanny maneuverability “edge” that the skills of the American skipper Dennis Conner simply couldn’t overcome. And across Australia that early Monday morning, the nation woke to the unexpected and surprising news - and exhaled a collective “whoa!”

It was with this in mind that I read a short update in the electronic newsletter “5 Minute Briefing: Data Center” published by the good folks at SHARE – the IBM Users Group, and with whom I continue to maintain good relations. I was particularly intrigued by the story filed under the heading “Mainframes Brightest Spot in IBM Server Line with 25 Percent Sales Jump” that reported “revenues from System z mainframe server products increased 25 percent compared with the year-ago period … (and) total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), increased 49 percent.”

This comment was then followed by “aside from System z, overall revenues from the Systems and Technology segment were sluggish, totaling $4.4 billion for the quarter, down 10 percent (11 percent, adjusting for currency) … Revenues from the converged System p server products increased seven percent compared with the 2007 period.” And then came the real zinger “Revenues from the System x servers decreased 18 percent, and revenues from the System i servers decreased 82 percent. Revenues from System Storage decreased three percent, and revenues from Retail Store Solutions decreased 24 percent. Revenues from Microelectronics OEM decreased 27 percent.”

In other words, apart from System z and System p, the revenues for all other servers lost ground. And what intrigued me here was that, comparing System z sales to a year-ago, glosses over the fact that twelve months ago the figures for System z were very low. All the smart CIOs, fully aware that the new z10 would be announced early in 2008 (see the posting on March 1, 2008 “Thirty years on - a new generation!” for more information on the z10 announcement) had held back the purchase of additional mainframe MIPS, depressing sales figures in the process. The reports that IBM has now seen a significant increase shouldn’t be a surprise at all, as these same CIOs rushed to make up for the shortfall in computing power that they had let develop over this timeframe. And it’s hardly a story I would be promoting as a return to growth in mainframe MIPS!

As for the bigger picture, this attention paid to the System z is even more interesting as it signals that the gap IBM has held over other competitors, is rapidly diminishing. And the speed with which this gap is eroding is somewhat staggering to me – I just didn’t think other technology companies would find the tools to advance as quickly as they have. And just as Hertz advertised for its stylish velocity-yellow ‘Vette, I had to “reserve some whoa!” as I ask myself: isn’t the revenue from the sale of systems less relevant these days and, anyway, isn’t IBM transforming itself into a Software and Services business?

If only that were the case! In the same report, the reporter went on to add “revenues from the Software segment were $5.2 billion, an increase of 12 percent (eight percent, adjusting for currency) compared with the third quarter of 2007. Revenues from IBM's total middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $4.1 billion, up 12 percent versus the third quarter of 2007.”

If you flatten the spike associated with the uptick in System z sales you would expect to see additional revenues flow to products like WebSphere (application and transaction services), Information Management (data base), and Tivoli (manageability)! Shouldn’t we have seen a much bigger jump in Software revenues? But I just can’t see it in the figures here, and neither do a lot of financial analysts. Has the competition rented the Hertz ‘Vette’ and driven clean past IBM? Have they started to “out-technology” IBM?

Whether it is cars or yachts, and whether it’s just a competition at the local level or a major international event, everyone looks for the edge that separates them from the rest. Now I am not suggesting turning to a corporation like Hertz and commandeering one of their most competitive products is an appropriate or relevant approach when it comes to technology. What I am suggesting is that if all IBM can point to these days is the return to routine mainframe MIPS numbers, plus some growth in System p sales, as their bright spots, then they really are in trouble.

The recent moves by HP – leveraging the Intel roadmap and delivering a comprehensive blades offering, partnering with Oracle and jointly launching a data base machine, as well as completing the acquisition of EDS suggests that HP has not just closed the gap to IBM, but is happily bowing right past it. All of these HP technology decisions made over the period of just a few quarters, is as rapid a transformation inside any technology company as I have ever witnessed. And I have no doubts whatsoever that there’s the potential for even more wise choices in the works.

Out on the track the appearance of the rented yellow Corvette certainly was a surprise. It was a bold move for sure, and attracted a lot of attention. Arriving at Newport with the smallest yacht, but capable of changing direction better than the competition, was just as bold a move. Has the technology leadership role IBM enjoyed for more than half a century slipped away, and is it IBM now that has “reserved some whoa” as it watches HP slip on by.

I have opinions and express them often in the postings on this blog, but I think the facts support my observations, and yes, I find reading press releases of the financial results fascinating sometimes…

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