Taking The Power Systems Pulse With GM Doug Balog
September 14, 2015 Timothy Prickett Morgan
It is hard to believe, but we are most of the way through the third quarter and looking ahead to the final quarter of the year. There is a pretty big lag in time between the last bit of business that is done in every 13-week period and when large companies like IBM actually know how well or poorly they have done. In the case of the Power Systems division within Systems Group, and particularly with the IBM i portion of that business, Big Blue says as little as possible to quantify and qualify how the business is doing. But there are hints, here and there.
Doug Balog, who has been general manager of the Power Systems division for the past two years, has had stints running development for IBM’s mainframe operating systems and X86 server business as well as being a general manager for the storage, System z, and Power Systems lines. He has seen a little bit of everything in his 32 years at Big Blue, and that is particularly useful because IBM is pitching the Power Systems line as a platform for serving and storing data, including traditional back-office work like online transaction and batch processing and new-fangled stuff like distributed analytics in its myriad forms and using Power8 servers as storage servers in massively parallel file systems used in the supercomputing segment and increasingly for certain kinds of analytics that need scale and bandwidth.
Balog can’t say much more about the Power Systems business than the quarterly conference calls IBM hosts with Wall Street, but like past general managers, he is allowed to say something to give a flavor about what is going on, and he took some time to do just that with The Four Hundred. Balog is no doubt relieved that the Power Systems line showed 1 percent growth at constant currency in the first quarter of the year and went a bit further and grew 5 percent at constant currency in the second quarter.
“This was good solid performance for us considering that we have seen a whole bunch of years of declines, but it feels to us that our strategy is working,” says Balog. “We are seeing clients adopt Power8 and the solutions we have built around these systems. This is the beginning, we believe, of an ongoing growth cycle.”
The good news is that in the second quarter of the year ended in June, both the entry level machines, which IBM refers to as the scale out systems, and the larger NUMA systems, which IBM refers to as the scale up systems, both showed some growth, according to Balog. But the scale out machines are the growth engines right now, apparently.
Here’s how Balog characterized the situation: “Within the portfolio–and partially because of timing, but also partially because of new architectures we see customers deploying–it has been our scale out portfolio fueling that growth, with strong double digit growth throughout the first half. This is not a complete surprise because the scale up systems finished their refresh in the second quarter, given the buying cycle that customers go through on these larger footprint systems. But we did see the scale up machines return to growth in the second quarter, particularly with the 128-core and 192-core systems. There was definitely some pent up demand there. But in the first half in terms of revenues and shipments, the scale out portfolio–one-socket and two-socket systems–have been driving that material growth.”
It is important to not confused revenue growth with absolute revenue here. In times gone by during the salad days of the AS/400, large systems accounted for about 25 percent of the shipments, but around 50 percent of the revenue. And there are those who believe that the large systems now account for a much larger portion of revenues for the Power Systems line. I would not even hazard a guess, but what I can tell you is that if you look at IDC server numbers for the second quarter, vendors shipped 2.29 million machines worldwide and 2.27 million of them were using X86 processors, and the vast majority of them were using chips from Intel. All other systems were using RISC (including Power, Sparc, ARM, MIPS, and others), Itanium, and proprietary chips. I am not saying that these IDC numbers are necessarily right, but they probably are pretty close, and if you do the math there, that is 20,000 systems worldwide using non-X86 chips were sold in the second quarter. I can remember when the AS/400 business alone shipped that many systems a quarter, and so can most of you. Now, those non-X86 systems accounted for 19.9 percent of revenues during Q2, or about $2.7 billion, and that makes the average selling price of one of these machines on the order of $135,000. The average X86 machine is selling for $4,760.
These two markets might overlap in places, such as in the scale out systems, but they seem to be very different animals, indeed.
For the Power Systems line overall, Balog says that the combination of the DB2 database with the BLU in-memory extensions plus Cognos analytics software is selling well, and added that SAP HANA on Power for Business Warehouse just started shipping three weeks ago. IBM’s BigInsights variant of Hadoop has just been launched with support for Spark in-memory analytics and machine learning integrated into the distribution, too, and that runs on Power8 iron as well. IBM also has a bunch of Power machines running Linux and its General Parallel File System with software-based RAID bundled together as the Elastic Storage Server, part of its Spectrum Scale family of storage products, and this is resonating with commercial and HPC customers.
On the IBM i front, Balog explains that the release of IBM i 7.2 to the market last year, what he called “the first big release in a bunch of years,” was helping drive Power System revenues and added that specific geographical markets were seeing good growth for IBM i. “Take a market like Japan,” says Balog, “that has been performing really well for us over the past four quarters–IBM i is just incredibly strong there. It is a very loyal and committed client base.”
But more than anything else, what seems to be helping the Power Systems line in recent quarters is a plain, old-fashioned upgrade cycle that is long overdue.
“One of the things that is interesting and that has been fueling our double digit growth in scale out systems has been the reactivation of clients that have not bought in a long time,” Balog explains. “We track that, and we know if a client has purchased something in the past four years, for instance, or hasn’t for four years or more because of depreciation schedules or confidence. If I look at the growth for scale out, many of the clients are purchasing equipment for the first time in over four years, and many of them are IBM i and AIX clients. In my view, they are buying because of the confidence in the strategy we are on to continue to deliver value with IBM i and AIX and to innovate there, but also to deliver new capabilities with Linux on Power. That is where the new applications are coming from. We know, and they know it. Now, you can run these operating systems across PowerVM and put them on a single footprint and manage it through OpenStack with PowerVC–this is a compelling story.”
That customers can do this is no question. But will they? History has suggested that shops running IBM i and its predecessors will tolerate some AIX or Linux workloads running side-by-side on their machines, or better still, run AIX applications in the PASE AIX runtime embedded inside of IBM i without even really knowing it. But most of the IBM i systems out there in the world are running mostly IBM i workloads, and are surrounded like a fort in enemy territory by a much larger number of machines running Microsoft Windows Server. If IBM wants to tackle some workloads, having a means of moving Windows-X86 workloads to their equivalents on Power-Linux might help. All of the pieces are there for such an attack, including .NET runtimes and databases and email servers that could be skinned to look like SQL Server or Exchange Server. IBM was not inclined to do such a thing when it had a System x business driven largely by Windows, but now that it does not have an X86 server business, maybe now is the time to have a concerted effort to lift and shift Windows work onto Linux on Power.
This is how workloads got moved off of other platforms onto Windows, after all. It just takes time, engineering, money, and commitment. Which is all just four different ways of saying money, I realize.