Groupe Bull: proprietary OS lock-in is back

High-end server and IT services company Groupe Bull SA is pinning hopes for a return to profit in 2003 on legacy mainframe customers tied to its proprietary GCOS operating system.

The company expects to make a small profit before interest and taxes in the second half of this year, compared to a first half loss before interest and taxes of €151 million (US$150 million as of June 30, the last day of the period being reported), Chairman Pierre Bonelli said at a news conference Friday. He predicted a return to net profit in 2003.

Bull reported a net loss of €524.2 million on revenue of €780.8 million in the first half, but Bonelli predicted that in the second half net losses would shrink to €29 million on revenue of €730 million. The first-half loss includes provisions of €225 million for restructuring and €148 million for other nonrecurring costs.

Bonelli refused to compare this year's figures with last year's results. "That's ancient history," he said.

Since his appointment on Dec. 2 to turn the loss-making company around, Bonelli has cut payroll costs for the half-year by €80 million through a program of voluntary redundancies, and cut other costs from €92 million to €52 million. He expects selling, general and administrative costs to be just €129 million in the second half, down from €222 million in the first half.

However, he would take no credit for the savings: "You can only get results like that in a few months if you start out with a lot of fat to cut," he said.

If Bull returns to profit in 2003 as Bonelli expects, the company will seek a fresh injection of capital, with the intention of paying off the €450 million it has received in loans from the French government since December. Bonelli will turn first to existing shareholders for new investment, and if they are unwilling, to the market.

With the company's new-found financial focus comes a renewed sense of its mission.

"Bull is a computer manufacturer. We make a billion dollars a year from making computers," Bonelli said, laying any lingering doubts to rest, adding, "We're the last such manufacturer in Europe. All the others have thrown in the towel."

Most of Bull's money comes from the market for high-end servers, he said, particularly those running its proprietary operating system, GCOS.

"GCOS will still be around in 2021," Bonelli said, dismissing reports of its demise. GCOS has found favor with banks, insurance companies and industry, and Bull will continue to serve that market by offering hardware upgrades to deliver better performance at lower cost, he said.

Bull has a head start over its competitors in delivering that performance boost: its Fame (Flexible Architecture for Multiple Environments) platform based on Intel Corp.'s new 64-bit Itanium 2 processor, according to Noël Saille, managing director of the company's server division, Bull Technologies. Using standard Intel four-way processor building blocks to keep costs down, Fame links the processors together using a proprietary chipset and a high-speed switching technology, Bull-Scalability Port Switch (B-SPS). Servers based on the Fame architecture can be partitioned virtually or physically to run multiple operating systems such as Windows, Linux or GCOS simultaneously, and will reach the market in late 2003 or early 2004, Saille said.

While the Fame architecture's ability to run multiple operating systems opens up new markets for Bull, the company is keen to lock in the revenue stream from its GCOS service business. Existing GCOS users will be encouraged to stick with it, rather than move to open operating systems such as Linux.

"Never again will we help a client migrate away from GCOS," Bonelli said. "That's in the customers' interest, and also in Bull's."

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