The Demographics of i Sales and Shipments

May 19, 2008 Timothy Prickett Morgan

When the server business was still called the systems business and there really were not commercial applications beyond basic print and file serving running on X86-based servers; when Unix and the whole open systems push was just getting going, Windows was not even a viable server platform, and Linux was not even an annoying idea in the head of a young nerd named Linus Torvalds; and when the mainframe still got the respect it deserved, even when it didn’t have an IBM label on it because there were lots of mainframe makers, it didn’t take very many machines or very much revenue to have a pretty sizable chunk of that systems market.

At that time, the System/38 and the System/36 had a pretty hefty share of its addressable market of midrange systems, and when the AS/400 launched with its huge base of applications ready to run on OS/400 proper or in emulation mode in the S36EE or S38EE emulation environments embedded inside OS/400–which crested at over 20,000 applications from over 8,000 independent software vendors a decade ago–the platform took the pole position in the midrange. Which pretty much meant that IBM was keen on giving out numbers to show off its prowess in the midrange. It also meant that the big market researchers in the IT sector, notably IDC and Gartner, who do the quarterly box counts and revenue market shares in the server space upon which untold bonuses (or lack thereof) depend, were happy to talk about the demographics of the AS/400 base: Who bought what when and how they were using it, and why, and why not some other box. Things like that.

Now, it is hard to get any demographic information at all about anything but the X64 market. I am not just talking about the OS/400-i5/OS-i platform, but also anything to do with the AIX, HP-UX, and Solaris Unix server bases or the mainframe base, too. The basic platform revenues–broken down by Windows, Unix, Linux, and Other–and platform shipments–carved up by vendor–are about all the data the public gets to see. Vendors and IT shops with big budgets can pay to get more fine-grained information, and vendors of course know all kinds of things about their installed bases.

As OS/400 and i5/OS shops figured out many years ago, the convergence to a single Power Systems has been underway for the past decade. But the actual and final convergence to a single product that supports i5/OS (now just i), AIX, and Linux was only accomplished in April. But you could see the handwriting on the wall a year ago, when Mark Shearer, then the general manager of the System i division (which no longer exists), explained to me at the COMMON midrange user meeting that according to IBM’s internal research for customers in the United States, for every $1 customers spend on i5 systems, they spend an additional $2.60 on Windows systems and another 40 cents on Unix systems and external storage arrays. He added that IBM’s share of the X86 and X64 servers installed at i5/OS and OS/400 sites today is around 30 percent, which obviously means that other vendors have the other 70 percent or so.

That, my friends, is as much insight as we have had for years. But, as it turns out, IBM is telling key resellers and customers quite a bit more than that, according to an internal report entitled System i Systems Directions 1H07. The data in this report is a bit out of date, but it definitely provides a little color on exactly what is going on in the customer base. IBM also gave its channel partners and sales people a sense of what it expects shipments and revenues to be like for 2008, as the Power Systems convergence is under way.

The latter two items are interesting. According to IBM’s volume plan for 2008, the company expects for System i 515 and Power System 520 machines with a single processor core activated to account for around 70 percent of volumes, with dual-core System i 525 and Power 520 machines accounting for another 23 percent of shipments. The midrange System i 550 and Power 550 boxes are expected to account for 4 percent of shipments, followed up by 3 percent for the System i 570 and Power 570. For all the talk about big OS/400 boxes, the System i 595 and Power 595 machines are expected to account for fewer than 1 percent of shipments. Exactly how many shipments IBM is planning for is unclear, but System i 520, 515, and 525 shipments have been growing in the double digits since the user-priced machines were announced a year ago. The relatively low numbers of big boxes is not necessarily an indication of weakness, but that the entry machines are getting some wind behind their sails for once.

According to the 1H07 survey of the installed base, IBM reckons that 80 percent of the OS/400-i5/OS-i customer base in the small and medium business segments has two or fewer systems installed, with 85 percent of the systems in place having only one core. So it is not a big surprise that single-core machines are expected to dominate System i and Power Systems sales for the i platform in 2008.

IBM is also telling business partners that in terms of sales, about 90 percent of revenues each year come from the installed base, which is adding machines or upgrading existing boxes, with the other 10 percent being new to the base. A decade ago, IBM was bringing 12,000 new customers a year to the platform, and I would be surprised if it was higher than 2,500 a year today; if revenue is proportional between new and existing customers, that would imply that IBM probably ships 25,000 to 30,000 System i-style boxes a year. (Meaning i5/OS and now i are the dominant operating system on the box, regardless of whether or not AIX or Linux might be running within logical partitions on the box.

Interestingly, the System i Systems Directions 1H07 internal report says that the average SMB shop running an i platform of some sort has an average of a dozen Windows servers, and that two-thirds of them are not made by IBM. In the material I have seen, IBM did not say explicitly over what term this spending limit spanned (presumably it is a six-month span, given the report’s name), but the report did say that i shops spent over $1 billion on Windows servers, with 88 percent of i shops reporting that they have Windows installed. IBM’s System x line accounted for 44 percent of Windows server spending at i shops, compared to 30 percent for Hewlett-Packard, 16 percent for Dell, and 10 percent for other X86 and X64 server makers.

While Linux is nowhere near as popular at i shops, spending came to $200 million, with 36 percent of midrange shops having Linux somewhere in their data centers and 35 percent of large enterprises having Linux. HP has the biggest piece of the Linux pie within the IBM OS/400-i5/OS-i installed base–a bit embarrassing considering that the iSeries got native support for Linux eight years ago–followed up by IBM’s own 19 percent spending share, Dell’s 14 percent share, and Sun Microsystems‘ 5 percent share.

Unix, being much more established in the data centers of i shops, accounts for much more spending–according to IBM, about $500 million, or a little less than half the spending rate for Windows boxes at i shops. Unix is big with big customers, as you might expect, with 47 percent of large enterprises that have i5/OS or i as their main platform also running Unix and only 20 percent of midrange shops have Unix systems installed. (Presumably, small i shops have little or no Unix, just like all small i shops probably have at least one Windows server.) Despite IBM’s aggressive pricing for Power-based AIX boxes–price cuts that were engendered by artificially high hardware and software prices for the iSeries and System i line for the past eight years–Sun still has the dominant Unix spending share at i shops, with 40 percent of spending compared to IBM’s own 39 percent and HP’s own 21 percent. The Power Systems convergence is as much about driving Sun and HP out of i shops as it is about simplifying the product line and providing price parity among System i and System p hardware platforms.

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