IBM will continue to invest in core technology and drive value through integration. This was the key message from Rod Adkins, the head of IBM’s Systems & Technology Group (and the industry’s sharpest dressed executive). IBM’s strategy is not to simply package commodity technology, but rather focus on integration that can drive optimization across the systems stack. IBM’s Smarter Computing initiative is central to its strategy of changing industry/client economics. In addition, IBM will continue to re-align its go-to-market to map to customer organizations and changes. Importantly, IBM is going after growth markets more aggressively than any other IT supplier and expects growth markets to contribute a major portion of revenue (40%) by 2015.
IBM continues to impress in systems technology, high end systems and core processor technologies. It clearly has a good strategy outside of simply reselling Intel systems. Its storage business is going through a multi-year transformation and still has some ways to go to reclaim its once-dominant position in the market.
Here are remarks from Rod and my points of view inserted.
Rod Adkins – SVP Systems and Technology Group
*Recap of 2010 – Takeaways:
-New systems designed required around data management and delivery
-IBM focus on integration and optimization in the stack
-Invest in systems and continue to focus on workloads – systems need to be tuned to needs of workload
-2010 pre-tax of $1.5B – goal is $2B by 2015e – 40% driven by share gains, 60% through added value and operating leverage
-By 2015, growth markets will contribute to 40%+ of revenue (China, India, E.Europe, S. America and Africa)
*2011 STG YTD Highlights
-7 consecutive quarters of double digit growth
-Highlights are growth in high end systems – 4 qtrs of 2bl digit growth
-Analytics – 35% qtrly growth thru 3Q11 – e.g. Watson
-Cloud – Revenue through 3Q more than 2X
*Competitive Point of View
-Over 2,400 Power Systems competitive displacements for $2.4B n revenue since 1Q’09 – mainly HP and Oracle takeouts
-System Z – Revenue up 28% YTD – mips up 30%
-Power – 14 consec qtrs of yty share gains – Revenue up 15% ytd
-Systems x – revenue up 9% YTD – high end revenue growth of 33% ytd
-Storage – Revenue up 12% YTD including storage software; over 2,100 new storage customers on XIV, Storwize V7000 since launch
*IBM STG Investment Strategy
-1) Systems investments – R&D on hardware design 2) Integration of the systems stack and 3) Storage efficiency and data protection
-Storage has historically focused on things like access time, etc, but the dialogue around efficiency and optimization will become much more important and security, encryption, compression and deduplication will become increasingly important. Storage tiering will also become more and more important (i.e. IBM Easy Tier); also topic of unifying structured and unstructured data in a single controller.
My POV: The industry has been talking about storage efficiency for several years now, at least since 2008 and IBM is playing catch up. However the fact that IBM has such a huge installed base and strong services business means that playing up can be incredibly profitable. But I don’t expect major dislocations in share as a result of this initiative.
-Growth Markets – STG development labs in China, Romainia, India/So. Asia, Africa
-Strategic Acquisitions – Platform Computing in 2011 – cluster and grid mgt software for HPC; Blade Network Technologies, Storwize (RtC), XIV, Diligent.
My POV: Again IBM was behind in storage IP and had to start acquiring. It still is behind in NAS – the fastest growing market. It’s acquisition of Storwize hasn’t resulted in much other than the name applied to the V7000. On balance IBM needs to continue to fill holes in storage – particularly in data protection. It has not leveraged Diligent nearly to the extent that EMC has leveraged Data Domain and IBM has a huge opportunity to make a bigger play in backup and recovery. The fact that IBM’s storage software is in another division makes it tougher in some ways for IBM to gain share against the likes of EMC. I expect IBM to continue to be aggressive in acquiring storage companies.
*IT Industry Positioning in the Post-PC Era.
Chart by Rod – has IBM and Oracle as most integrated, then (interestingly) EMC. HP, Cisco and Dell more consumer-oriented but moving toward Oracle and IBM.
-STG Investment Strategy – 1) technology does matter – workload optimized systems and technology are fundamental; 2) Transformation from a go-to-market standpoint – supply chain and leverage across the IBM portfolio (cloud, virtualization, analytics, etc); 3) Invest – growth markets, Business analytics and optimization, cloud, smarter planet (IBM’s 4 plays).
*IBM Smarter Computing POV
-89% of CIOs want better insights to data
-60% of CIOs plan to use cloud
-TCO per workload can be reduced by up to 55% with optimized systems
*Four Major Plays:
- Smarter Computing
- Growth Markets
Examples Rod gave…
Lego – consolidation use case. 25 production systems down to 2 using Power, storage, SW, Svcs; resulted in $150M in biz benefits and 22% revenue growth
China Telecom – Standardization and automation use case
*Shifting Client Values
-Value is mopving from component to integrated models. Pre-integrated, pre-tested, pre-engineered systems will increasingly become the norm. IBM has a range of offerings in this regard – client tuned systems, integrated Optimized systems and appliances (e.g. Netezza).
My POV: Once again IBM is late to be talking about this trend toward convergence of compute, storage and networking. While Rod didn’t mention specifically “converged infrastructure” that’s essentially what he’s talking about. VCE, HP, NetApp and Oracle have all been marketing this capability for well over 12 months and are getting traction in the market. IBM’s strength continues to be its diverse portfolio and its great services capability, not time-to-market. IBM doesn’t have to be first – it has to be the most trusted and that’s a strategy that is working in terms of driving profits, free cash flow and very impressive shareholder value.