While it has yet to really reflect in the one area that truly defines success -- stockholder's wallets -- industry experts believe that IBM had a strong 2005, and laid the groundwork for bigger and better things in the very near future.
The company's performance sent a signal to the IT industry that Big Blue finally "gets it," thanks to a rebirth of the iSeries, one of IBM's signature platforms; widespread acceptance of its Power microprocessor line; a series of tactical software acquisitions; a continued push for open source technology; the launch of its next generation mainframe, the powerful z9; and the expansion of its independent software vendor (ISV) and development community.
Charles King, principal analyst at Hayward, Calif.-based Pund-IT Research, said while IBM's financials didn't go through the roof in 2005, signposts -- such as the continued success of the Power chip, the resurgence of the iSeries and poor performances from Big Blue's competitors, specifically Dell -- have given IBM new life.
Big year for IBM platforms
Perhaps no line in the IBM portfolio had a better 2005 than the "i." Industry experts and IBM point to several factors that have led to the iSeries' resurgence, including the success of the Power5 chip technology, increased focus on developing a stronger relationship with the iSeries developer community, a reshuffling of iSeries leadership and an aggressive marketing push.
Earlier in the decade, the iSeries suffered from "White Box Mania" and a faulty marketing strategy. In the 16 fiscal quarters from 2001 to 2004, iSeries revenue dropped 10 times --including eight quarters that saw a falloff of 10% or more -- and a 17% decrease in revenue in 2004 marked the third time in four years the platform saw a double-digit drop-off.
But year-to-year growth improved in each of the first three quarters in 2005. The iSeries jumped 1% in Q1, 10% in Q2 and 25% in Q3.
"It's been a great year for the iSeries. Not much more than a year ago there were analysts who were saying the iSeries was dead in the water," King said.
On the mainframe side, IBM completed a three-year, $1.2 billion development effort involving 5,000 IBM engineers, developers and other experts by launching its next generation Big Iron, the z9, in New York in late July. The z9 features twice the capacity of its predecessor, the z990, and IBM is hoping that its newest mainframe will be the jumping-off point for resurgence in the zSeries.
The zSeries saw revenue dip 4% in Q3 2005, the fourth straight period revenue sunk.
"The zSeries has done very well, but I get the feeling there was a lull in the market waiting for the [z9] to come out," King said.
Lastly, Big Blue overtook longtime market leader Sun Microsystems Inc. atop the Unix server market in Q2 2005, after lagging behind Sun for seven years. IDC reported that IBM leads the pack by a slim margin, followed by Hewlett-Packard Co. and Sun.
Big Blue buying spree
IBM also strengthened its software position in 2005 by pouring more than $125 million into its ISV development program. This move was an attempt to grab more partners by offering a wider range of services and increased financial support to developers.
Big Blue also bought several software companies this year, mostly around systems management. Mary Johnston Turner, vice president and practice director at Boston-based analyst firm Summit Strategies, said IBM has moved away from trying to solve gaps in its software portfolio internally, and has instead turned to smaller, outside developers. It's a strategy Turner said puts IBM in a better position to get to market much more quickly.
"This was a major year for Tivoli," Johnston Turner said. "They've done a pretty good job of understanding holes and weakness, and trying via acquisitions to fill them in short order. … They've made a commitment to a process-centric method of IT management; they've embraced the idea of delivering IT as a service. They were kind of late to the party, but they did a good job when they got there."
In 2005 alone, IBM bought Isogon Corp., Ascential Software Corp., Meiosys, Cyanea Systems, Collation, among others.
Stephen Elliot, research manager at IDC, also likes IBM's aggressive software acquisition strategy, but warns that now that Big Blue has started to fill out its software portfolio, the real challenges lie ahead.
"The large challenge in 2006 is portfolio integration," Elliot said. "Not only [do new software acquisitions need to be] in sync with IBM, but also in sync with each other. The larger fear is an inability to make decisions, in terms of prioritizing integration at the product level to resource allocation and dedication from a services perspective."
News Editor Matt Stansberry contributed to this article.
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