IBM zSystem Continues Surge in 4Q15

DancingDinosaur follows technology, not financial investments, so you’d be an idiot if you considered what follows as investment advice. It is not.  Still, as one who has built a chunk of his career around the mainframe, it is good to see the z System continuing to remain in the black and beating the sexier Power lineup although I do follow both closely. See the latest IBM financials here.

  ibm-z13

The IBM z13 System

 Specifically, as IBM reported on Tuesday, revenues from z Systems mainframe server products increased 16 percent compared with the year-ago period (up 21 percent adjusting for currency).  Total delivery of z Systems computing power, as measured in MIPS (millions of instructions per second), increased 28 percent.  Revenues from Power Systems were up 4 percent compared with the 2014 period (up 8 percent adjusting for currency).

Almost as good, revenues from Power Systems were up 4 percent compared with the 2014 period (up 8 percent adjusting for currency). Power revenues have been up most of the year although they got a little blurry in the accounting.

In the storage market, which is getting battered by software defined storage (SDS) on one hand and cloud-based storage on the other, IBM reported revenues from System Storage decreased 11 percent (down 7 percent adjusting for currency). The storage revenues probably won’t bounce back fast, at least not without IBM bringing out radically new storage products. That storage rival EMC got acquired by Dell should be some kind of signal that the storage market as the traditional enterprise players knew it is drastically different. For now object storage, SDS, and even Flash won’t replace the kind of revenue IBM used to see from DS8000 disk systems or TS enterprise tape libraries loaded with mechanical robotics.

Getting more prominence is IBM’s strategic initiative. This has been a company priority all year. Strategic initiatives include cloud, mobile, analytics, security, IoT, and cognitive computing. Q4 revenues, as reported by IBM, from these strategic imperatives — cloud, analytics, and engagement — increased 10 percent year-to-year (up 16 percent adjusting for currency).  For the full year, revenues from strategic imperatives increased 17 percent (up 26 percent adjusting for currency and the divested System x business) to $28.9 billion and now represents 35 percent of total IBM consolidated revenue.

For the full year, total cloud revenues (public, private and hybrid) increased 43 percent (up 57 percent adjusting for currency and the divested System x business) to $10.2 billion.  Revenues for cloud delivered as a service — a subset of the total cloud revenue — increased 50 percent to $4.5 billion; and the annual as-a-service run rate increased to $5.3 billion from $3.5 billion in the fourth quarter of 2014.

Meanwhile, revenues from business analytics increased 7 percent (up 16 percent adjusting for currency) to $17.9 billion.  Revenues from mobile more than tripled and from security increased 5 percent (up 12 percent adjusting for currency).

Commenting on IBM latest financial was Timothy Prickett Morgan, who frequently writes on IBM’s platforms. Citing Martin Schroeter, IBM’s chief financial officer, statements to analyst, Morgan suggested that low profit margins, which other financial analysts complained about, put pressure on the System z13 product line that launched early in the year. After a fast start, apparently, the z13 is now experiencing a slowdown in the upgrade cycle. It’s at this point that DancingDinosaur usually expects to see a new z, typically a business class version of the latest mainframe, the z13 in this case, but that does not appear to be in the offing. About the closest IBM got to that was the RockHopper model of the LinuxOne, a z optimized only for Linux, cloud, mobile, and analytics.

Morgan also noted that IBM added about 50 new mainframe customers for the year on an installed base of about 6,000 active customers. DancingDinosaur has been tracking that figure for years and it has not fluctuated much in recent years. And am never sure how to count the handful of IT shops that run a z in the IBM cloud.  But 5000-6000 active z shops still sounds about right.

Power Systems, which has also grown four quarters in a row, and was up 8 percent at constant currency. This has to be a relief to the company, which has committed over $1 billion to Power. IBM attributes some of this growth to its enthusiastic embrace of Linux on Power8, but Morgan complains of having no sense of how much of the Power Systems pie is driven by scale-out Linux machines intended to compete against Intel Xeon servers. Power also is starting to get some boost from the OpenPOWER Foundation, members that started to ship products in the past few months. It’s probably minimal revenue now but over time it should grow.

For those of us who are counting on z and Power to be around for a while longer, the latest financials should be encouraging.

DancingDinosaur is Alan Radding, a veteran information technology analyst and writer. Please follow DancingDinosaur on Twitter, @mainframeblog. See more of his IT writing at technologywriter.com and here.

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