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iSeries revenues disappoint -- again

Despite plenty of optimism that this would be the quarter the iSeries would finally see an increase in revenues, the numbers are once again bleak. Will the bleeding ever stop?

iSeries revenue fell 9% in the fourth quarter, marking the fourth consecutive quarter the iSeries' numbers have dipped.

IBM laid most of the blame on a transition to new products, such as the i5. But analysts said the dropoff is just another example of IBM's inability to keep up with Windows in the midrange server community -- even as its newest platform, the i5, had been well-received among existing iSeries customers.

According to Jonathan Eunice, principal analyst with Illuminata, Nashua, N.H., Windows had become the preferred midrange server of choice because it had done a much better job over the past five years in both its pricing policies and in making its application software the industry standard.

The iSeries has had a rotating series of managers. They haven't put one person in there and said 'make this work.
Jonathan Eunice
Principal AnalystIlluminata

In addition, Mark Shearer's appointment earlier this month as the iSeries' third general manager since July 2004 has been a stumbling block for the company as it tries to sustain commitment to long-term growth and gain ground in the marketplace.

"The iSeries has had a rotating series of managers. They haven't put one person in there and said 'make this work,'" Eunice said.

In April 2004, the iSeries had shown a 7 % drop in first quarter earnings, hardly a cause for alarm at that time. After all, IBM had yet to announce the i5, the next generation of its iSeries and the first server based on the Power5 chip. Hardware sales often take a dip preceding a major release. But when IBM finally revealed the i5 in early May, many users who had been on the fence about whether to make the move to the upgraded server stayed where they were. In June, second quarter results revealed and even bigger drop -- 28%.

Big Blue was hoping a two-month head of steam and an entire quarter's numbers to draw on would help iSeries revenues spring back to life in the third quarter. But those numbers reflected more of the same, falling 20% off 2003's total.

Charles King, a principal analyst at Hayward, Calif.-based Pund-IT Research, said IBM didn't help itself by stretching out four separate product announcements last spring. The span gave existing iSeries customers more time for uncertainty about the i5 -- especially because it was developed using technology from the pSeries and common hardware.

To read more:

The wait for Power5 cuts iSeries Q1 sales short

Next quarter may bode better for iSeries sales

"Anytime a company does a significant refresh of a product, a chance arises for a customer to step back and think about how the platform is going to work with their existing hardware," King said.

Though the bleeding was reduced somewhat in the final quarter of 2004, Tuesday's news was not what IBM was hoping for, despite an overall increase in revenue of 12%.

According to Eunice, the new i5 is a technically strong platform that has earned raves within the AS/400 community, but Big Blue has more work to do to if it wants to reclaim a larger slice of revenue from its mid-range server division.

"It's not a failure of product," Eunice said. "It's a much more symptomatic problem. [IBM] has to revitalize the way they rally the software development and user community around the iSeries."

King sees the iSeries' potential for an upswing in 2005 as strong -- provided IBM can reach out to potential i5 users and coax them into the fold.

"I'm pretty positive about the iSeries in 2005," King said. "IBM's decision to blend development costs on two different platforms was financially sound … Getting the word out to [attract] new iSeries customers is going to be the biggest challenge. It's really going to be crucial for them to do so."

IBM was unavailable for comment Wednesday.

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