IBM 2Q 2016 Report—Where’s z System and POWER?

“IBM continues to establish itself as the leading cognitive solutions and cloud platform company,” said Ginni Rometty, IBM chairman, president and chief executive officer, in a statement accompanying the latest IBM 2Q financial report. The strategic imperatives grew; second-quarter revenues from its cloud, analytics, and engagement units— increased 12 percent year to year.

IBM Quantum Computing Lab - Friday, April 29, 2016, Yorktown Heights, NY (Jon Simon/Feature Photo Service for IBM)

IBM Quantum Experience delivered via Cloud (Jon Simon/Feature Photo Service for IBM)

Where’s z and POWER? The z and POWER platforms continued to flounder: revenues of $2.0 billion, down 23.2 percent. Revenue reflects z Systems product cycle dynamics; gross profit margin improved in both z Systems and Power. “Product cycle dynamics” refers to the lack of a new z.  In the past year IBM introduced the new LinuxONE and, more recently a new z13s, essentially what used to be known as a Business Class mainframe.

There is no hint, however, of a new z, a z14 that will drive product dynamics upward. IBM showed a POWER roadmap going all the way out to the POWER10 in 2020 but nothing comparable for the z.

DancingDinosaur, a longtime big iron bigot, remains encouraged by IBM’s focus on its strategic initiatives and statements like this: “And we continue to invest for growth with recent breakthroughs in quantum computing, Internet of Things and blockchain solutions for the IBM Cloud.” IBM strategic initiatives in cloud, mobile, IoT, and blockchain will drive new use of the mainframe, especially as the projected volumes of things, transactions, users, and devices skyrocket.

Second-quarter revenues from the company’s strategic imperatives — cloud, analytics and engagement — increased 12 percent year to year.  Cloud revenues (public, private and hybrid) for the quarter increased 30 percent.  Cloud revenue over the trailing 12 months was $11.6 billion.  The annual run rate for cloud as-a-service revenue — a subset of total cloud revenue — increased to $6.7 billion from $4.5 billion in the second quarter of 2015.  Revenues from analytics increased 5 percent.  Revenues from mobile increased 43 percent and from security increased 18 percent.

IBM indirectly is trying to boost the z and the cloud. CSC and IBM  announced an alliance with IBM in which IBM will provide CSC Cloud Managed Services for z Systems. CSC already includes IBM SoftLayer as part of its “Service-enabled Enterprise” strategy. “Cloud for z” extends that offering and will be of interest to current and potential mainframe customers in healthcare, insurance, and finance. CSC still sees life in the managed mainframe market, and IBM Global Technology Services, a competitor to CSC, apparently is happy to let them sell managed cloud services for mainframes. All this is taking place as IBM scrambles to secure a leadership share of cloud revenue, and any cloud billing CSC brings will help.

Microsoft, like IBM, claimed big cloud momentum on its fourth quarter conference call, according to a report in Fortune Magazine. It was enough to send Microsoft share price up 4% at one point in after hours trading.

As Fortune notes, for Microsoft as for IBM and other legacy IT providers like Oracle, putting up big cloud numbers is mandatory as more companies change the way they buy IT products. Instead of purchasing hundreds or thousands of new servers or storage boxes every few years, more companies are running their software and storing their data on shared public cloud infrastructure, like Microsoft Azure, Amazon Web Services, the Google Compute Platform, or the IBM Cloud.

For reporting purposes, Microsoft combines Azure with other products in its intelligent cloud product segment. Overall, that segment’s revenue grew about 7% year over year to $6.7 billion from about $6.3 billion.

Oracle, too, is facing the same scramble to establish an enterprise cloud presence. Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were $690 million, up 66% in U.S. dollars. Total Cloud revenues, including infrastructure as a service (IaaS), were $859 million, up 49% in U.S. dollars. At the same time, Oracle’s hardware revenue fell by 7% to $1.3 billion, and its software license revenue fell by 2% to $7.6 billion.

“We added more than 1,600 new SaaS customers and more than 2,000 new PaaS customers in Q4” (which ended in June), said Oracle CEO, Mark Hurd. “In Fusion ERP alone, we added more than 800 new cloud customers. Today, Oracle has nearly 2,600 Fusion ERP customers in the Oracle Public Cloud — that’s ten-times more cloud ERP customers than Workday.”

Hewlett Packard Enterprise (HPE) is the last of the big public enterprise platform vendors, along with IBM and Oracle. (Dell is private and acquired EMC). HPE recently reported its best quarter in years. Second quarter net revenue of $12.7 billion, up 1% from the prior-year period. “Today’s results represent our best performance since I joined in 2011,” said Meg Whitman, president and chief executive officer, Hewlett Packard Enterprise. The businesses comprising HPE grew revenue over the prior-year period on an as-reported basis for the first time in five years.

IBM needs to put up some positive numbers. Seventeen consecutive losing quarters is boring. Wouldn’t it be exciting if a turnaround started with a new enterprise z14?

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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