iSeries Resellers Weigh In on the State of the Box

by Dan Burger

If you follow the IBM financial reports, you know 2004 was not a banner year for the iSeries, and 2003 was not so great, either. Overall revenue in 2004 was off over 20 percent. Sales were down every quarter, although the fourth quarter was promising in that sales were only off by 9 percent.. While 2003 was helped somewhat by the Green Streak promotions, which pumped up iSeries sales with discounted machine, 2004 was hurt by the transition to the i5.

The issue now is quite simple: what, if anything, will turn things around for the iSeries in 2005?

From strictly a mathematical standpoint, the poor revenue figures in 2004 should make 2005 look better by comparison. Year-to-year comparisons can be misleading when not given a wider perspective. In the case of the iSeries, it is necessary to look back several years to make more accurate comparisons. So other than dark cloud revenue numbers, what did iSeries put on the table in 2004 and what might be expected in 2005 now that we are six weeks down that road?

I first went to Tony Madden, vice president of sales for Avnet Partner Solutions, who handles products in the Americas. Madden makes a living selling the iSeries--and the more he sells, the better living he makes--and he clearly sees a silver lining in the dark cloud of 2004. He points out that at Avnet, the total volume of iSeries and i5 boxes sold in 2004 increased compared to 2003. The total number of transactions in the iSeries market also showed an increase.

"I can think of several reasons why revenue was down in 2004," Madden says. "First, go back to 2003, which was a phenomenal iSeries year. We experienced tremendous growth. It made it difficult for 2004 to favorably compare. I also can point to the decrease in the really large transactions compared to 2004. And, the better price/performance offered by the introduction of the i5s in April 2004 led to more machines being sold in the middle of the product line." Experience tells Madden that the largest iSeries customers tend to buy in two-year cycles. Many of them bought in 2003, and their absence in 2004 contributed to the fall off in revenues. His expectations are that the enterprise companies will be back in 2005, and their spending will fuel iSeries gains.

"In 2005, it won't just be the larger shops carrying the load," Madden predicts. "It will be a balance. I anticipate that we will sell more boxes again this year. So overall, it will be a combination of volume sales and big sales. I see an increase in purchases from the underlying customer base to go along with the resumption of large customer buying cycle." About 70 percent of Avnet's iSeries revenue comes from the SMB market, Madden says.

"Price/performance is certainly a reason for revenue being down in 2004," says Eric Williams, executive vice president of Arrow Electronics Support Net Division. "People are getting more computing power at a lower cost today." Williams agrees that loss of revenue does not reflect as much on unit sales as much as on the average size box that's being sold. The iSeries revenue for the Support Net Division declined in 2004, but Williams said the fourth quarter showed a single digit percentage increase compared to 2003 and the first quarter of 2005 is following that trend.

"I believe our 2005 sales will surpass 2004," he says. "Time becomes a friend. Eventually, people are going to want the new technology. We have installed bases that are running on old technology. In some cases, 80 percent or more are running on technology that is two years old or older, and most users have a two- to three-year buying cycle."

The transition to Power5 technology with the eServer i5 "Squadron" servers in 2004 caused somewhat of a stall in the market during 2004 because the market was trying to figure out the options, Madden says. Now, seven to eight months later, the early adopters have made the move and the market, led by larger enterprise shops, has some momentum toward these Power5-based boxes.

The question that remains unanswered is whether the price/performance benefit will allow those companies to spend less on hardware and therefore the revenue gains will not be proportionately as large as it was in past years.

That's where the iSeries strategy of increasing workloads (and capacity) comes into play. More workloads require bigger boxes to match the requirements. It keeps people feeding their iSeries. Adding workloads drives iSeries upgrades. Naturally, the opposite it true as well. With declining workloads, the iSeries becomes less important in the data center.

Williams agrees that the core issue for iSeries success is to increase workloads and add more transactions on the box. Without that a company doesn't have a compelling need to upgrade or buy a bigger box.

"You have to maintain applications on the iSeries," says Pete Elliot, director of marketing at Key Information Systems, a systems integrator and IBM business partner. "As your mission critical applications leave the iSeries, where does that leave you? The iSeries has its work cut out for it. IBM has done a better job putting more attention on applications and ISVs, but it's late in the day. This should have been done years ago."

Madden says Avnet has about 100 iSeries independent software vendors (ISVs) in its partner program. And in his view, they are committed to driving new workloads. In his estimation, IBM has done an excellent job "energizing the ISV community," upgrading the portfolio of applications, laying out a plan of attack for its partners, and devoting resources to these objectives.

IBM has been talking about its rejuvenation efforts in the ISV community for several years, and frankly Big Blue was more than a few years too slow in getting this effort under way. A year ago, IBM and the iSeries ISVs were still building some momentum in this area, even though at that time it was being presented as a strong connection between IBM and the solution providers. Strong maybe in comparison to a relationship that had been badly deteriorated, but not as strong as it needed to be. Madden believes they are in better shape now to make a run during 2005. He says IBM has a better grip on who the best solution providers are and which of them can help the iSeries team drive into the SMB market. The strategy one year later hasn't changed, but IBM's ability to execute has improved dramatically.