Australian mainframe market likely to follow global drop

Australia’s mainframe market will likely follow the steep global downward trend according to analyst firm IDC but IBM is pinning its growth hopes on the launch of a new System z.

For the second quarter of this calendar year, IBM reported a revenue drop for its mainframe business of 24 per cent year on year; it does not report income or provide a breakdown of the business into geographic locations.

The decline follows more than a year of similar falls with the business posting a 27 per cent drop year on year in the fourth quarter of 2009. In the three quarters prior to that it suffered drops of 26 per cent in the third quarter, 39 per cent in the second quarter and 19 per cent in the first quarter.

IDC analyst, Matt Oostveen, said the potential for a double dip recession in the global economy could hurt IBM’s local mainframe business.

“From a macro perspective, large enterprise customers (traditionally the target market for mainframe systems) still have reduced IT budgets which is a hangover from the global recession and the talk about the possibility of a double dip will certainly dampen confidence,” he said.

“The Australian results are not yet in for Q2, but there is certainly no indication that Australia will outperform the global trend of a declining mainframe market. Australia has had one of the most robust mainframe (CISC) markets in the world however the slow-down is expected to reach our shores.”

However, IBM is pinning its hopes for a turn around on a planned launch of an update to the System z brand this week with details to be revealed Thursday 22 July. Availability of the new systems are expected in mid-September.

“This week IBM will announce the next generation of System z – the fastest and most scalable enterprise server in the industry,” IBM chief financial officer, Mark Loughridge, said in an investor presentation announcing the results this week. “This server provides 40 per cent more performance on a mix of workload than the equivalent z10. Some workloads can achieve greater performance improvements, such as linux which has 50 per cent better performance and 35 per cent lower cost. This announcement is the foundation of IBM’s first system of systems, which provides the capability to manage 10 times the virtual machines of VMware by extending mainframe governance to our other industry leading technologies.”

With the introduction of the new high-end Loughridge said he expected the growth rate to improve “in the third and fourth quarters and to deliver double digit pre-tax income growth for the second half of the year.”

IBM is also attributing some of the downturn in the mainframe business to hesitation from customers that are awaiting the product launch, a point Oostveen acknowledges.

“System z customers are typically very aware of IBM's mainframe updates cycles and upgrade their servers in step with IBM's product release cadence,” he said. “With a new release imminent, I'm sure the System z installed base is very curious to hear about the details of the next generation of mainframe. This curiosity comes about from the IBM mainframe being so strategically important to the majority of large enterprise businesses in Australia.”

Last year, IBM Australia was claiming two years of success in the mainframe business while the global business and that of the overall server market declined.

In Q1 of 2009 the overall Australian server market had its worst quarter on record with units shipped declining 38.9 per cent and revenue sliding 38.8 per cent year-on-year, according to IDC.

However, in following quarters fellow analyst firm Gartner pointed to the mainframe as having a solid performance (31.8 per cent growth year-on-year for Q2 2009) across the Asia-Pacific region, driven largely by new deals in Australia and South Korea.

IBM told Computerworld Australia it has roughly 50 clients domestically with 150 mainframe boxes between them (excluding IBM Global Services). And of this, six per cent were new customers over the 24 months to October.

However, in May Gartner reported that globally Hewlett-Packard knocked IBM from the top spot in worldwide server revenue during the first quarter, as the market for x86 systems picked up but sales of Unix and mainframe systems continued to decline. IBM has also been facing antitrust complaints in Europe over its mainframe business.

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