Hitachi Scales Back Its High-end Systems

FRAMINGHAM (03/07/2000) - Hitachi Data Systems Corp. is scaling back its mainframe manufacturing operations, less than a month after it announced a powerful new generation of systems aimed at growing its high-end market share.

The San Jose-based company said this morning that it will no longer sell models of its Trinium and Pilot series of mainframe systems to new customers because of continuing hardware price erosion.

"With the market price erosion we have seen in the last 12 to 18 months, we were at a point where profitability was being squeezed to an unacceptable level," said Chris Worrall, a Hitachi vice president.

As a result, Hitachi will stop sales and marketing efforts directed at new customers for the Trinium and Pilot systems and focus solely on the existing installed base, Worrall said.

Hitachi will continue to provide maintenance, services and future upgrades for current users of its Trinium systems, including new server models, Worrall said. Hitachi's smaller Pilot mainframes, which are based on CMOS chips made by IBM, will continue to be similarly supported. But there will no new future Pilot models, Worrall said.

In the long term, Hitachi will focus on delivering a class of high-end enterprise server, code-named Hercules, that will be based on Intel Corp. architecture and capable of supporting multiple operating systems, such as OS/390, Unix and Microsoft Corp.'s Windows NT, Worrall said.

"We believe IBM's aggressive Generation 5 and Generation 6 mainframes, 1999's 50% S/390 MIPS pricing drop, Trinium's introductory stumble, lack of future access to IBM's (S/390) CMOS chips and (the second half of) 1999's Y2K procurement drought killed Hitachi's profitability," said a report from Stamford, Conn.-based Meta Group Inc. that commented on Hitachi's move.

"While IBM will garner most of Hitachi's (12%) market share, Amdahl's Millennium C and E systems will also benefit," the report said.

Hitachi's move comes less than a month after the company enhanced its Trinium line with a new 16-processor model that delivers a combined performance of more than 3,000 MIPS. That's roughly twice the peak 1,600 MIPS delivered on IBM's highest-end Generation 6 mainframes.

The Trinium Nine Series was scheduled for shipment last fall, but problems limited Hitachi to releasing a 12-processor version that didn't leapfrog IBM's machines enough to provide a compelling alternative.

Hitachi, which had a 21% share of the mainframe market in 1997, dropped back to 14% in 1998 and did even worse last year, according to Meta Group.

Hitachi's fate may have been sealed by its decision to stick with systems based on older emitter-coupled logic (ECL) designs, said David Floyer, an analyst at ITcentrix Inc., a mainframe consultancy in Mountain View, Calif.

Systems such as Hitachi's Trinium and earlier SkyLine models are based on hybrid processors that combine the low power consumption and floor-space savings of air-cooled CMOS technology with the speed of the older ECL designs.

While this approach allowed Hitachi to build the industry's largest mainframes, the cost of manufacturing such systems was much higher than pure CMOS-based systems such as those from IBM and Amdahl Corp.

There's little you can do when your volumes are constrained and your costs are much higher," Floyer said. "I think they were hurting a lot before this. ... It was just pride that kept them going so far."

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