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IBM System i revenue slumps hard

System i revenue plummeted 22% in the first quarter of 2006, the second such drop in as many quarters.

System i is starting off the year with a pang.

IBM yesterday announced revenues for the servers plunged 22% in the first quarter of 2006, the second consecutive quarterly drop for a platform that saw its numbers surge last year alongside substantial company backing in the form of upgrades and vigorous marketing. Sales in the fourth quarter fell 12% at the end of 2005.

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Though disappointing, analysts said the results weren't necessarily an indicator of doom, as the iSeries is a product line in transition that could cause potential customers to hold out for a few months before an assumedly attractive new release. But this latest decline, even sharper than before, may be an indicator that last quarter's dip was more than a hiccup.

These are the first numbers to appear following the moniker change to System i -- marking for the platform the third name change in six years -- a decision that has been loudly and widely decried as counteractive to new user adoption. The numbers also represent the debut results during the tenure of newly appointed System i marketing vice president Elaine Lennox, who joined in late January after Peter Bingaman defected for a post at LexisNexis.

Much of the success in 2005 was attributed to Bingaman and general manager Mark Shearer, who aggressively advertised and increased support for iSeries independent software vendors.

Efforts yesterday morning and afternoon to reach Lennox were unsuccessful, but System i spokesperson Joanna Brewer said IBM is betting factors like new support for scripted language PHP and platform applicability with service-oriented architecture will drive further interest.

"That's a bright spot," Brewer said.

Even with things a bit up in the air, with pieces still shifting, analysts remained hesitant to be concerned.

Usually, it takes a couple of months for customers to get on board following an upgrade, according to Charles King principal analyst for Hayward, Calif.-based Pund-IT Research, referencing the recent integration of Power5+ chips on the platform.

"What with the effort from the company in expanding its ISV [independent software vendor] base and applications, I think the rest of this year -- what happens over the next two or three quarters -- will indicate the value of that investment," King said. "They've done what they need to do, but how the market reacts is critical."

Mike Kahn, managing director with Wellesley, Mass.-based Clipper Group, was more lax about assigning worry.

"With System i, the evolution here is a long multiyear path and not a quarter to quarter -- even year over year doesn't get me excited," Kahn said. "I'm a tech analyst, not financial, and what I can tell you is there are a number of things that have been changing, particularly at the low end. There's pent up demand."

Both Kahn and King said IBM's recent teaming with EMC Corp. is a point of optimism. The five-year licensing agreement aims to provide compatibility between i5/OS and the EMC Symmetrix networked storage systems and software.

"EMC's been doing some very, very cool stuff on the lower end, especially the Clariion arrays and with virtual tape libraries," King said. "That would do very well on lower to middle end of the iSeries market."

Big Blue's total first quarter revenues ($20.7 billion) also show a 10% decrease from the first quarter of 2005, up 4 % when adjusting for currency and the impact of the divested PC business.

Other IBM numbers:

  • Hardware revenues for the Systems and Technology Group totaled $4.4 billion for the quarter, up 3%, 6 %, adjusting for currency.
  • Revenues from the System x server products increased 10%.
  • System p Unix servers decreased 9% .
  • System z server products decreased 6% compared with the year-ago period. Total delivery of System z computing power, measured in millions of instructions per second, increased 22%.
  • Revenues from Microelectronics increased 37%, and revenues from System Storage increased 6%.

    Let us know what you think about the story; e-mail: Joe Spurr, News Writer

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