"IBM says revenue for its mainframe business rose 32% in the second quarter compared with a year earlier, easily outpacing overall sales growth of 13%.A big driver was February's launch of IBM's next-generation mainframe line, the z10, its first big upgrade since 2004. IBM spent about $1.5 billion on the new line.
With their power and size, mainframes have some unique advantages over (distributed) servers. Many companies cobble together many servers, powered by industry standard chips made by Intel (INTC) and Advanced Micro Devices, (AMD) to do jobs that were once the province of mainframes. IBM, too, sells such servers.
IBD: Can you tell me more about this business?
Gelardi: Traditionally, the mainframe was the back-office powerhouse for batch and transactional processing — sort of the thing behind banks, the thing behind retailers, the thing behind insurance companies.
It's the thing that, if you screw this up, you just gave your whole business away. The new thing, which is really sort of the second driver of growth, is the introduction of Linux (an open-source operating system popular with some servers) on the mainframe. Z-Linux (IBM's Linux mainframe software) is where we have been able to drive substantially new workloads to the mainframe.
IBD: Why is the mainframe business important to IBM?
Gelardi: It's a very differentiated product environment where we feel very confident that we can say to a client, look, we built this thing from the casters all the way up; the software stack, all the way up. We've built into this a level of performance and scalability and efficiency. We're very, very confident that we can resolve any issue (for customers).
Let me give you an example. If I take (1,500 Intel) servers . . . and put them on a single mainframe, I'll have no performance problems whatsoever. But I'm taking all of that workload that was on 1,500 separate servers and consolidating them on one mainframe. While it may be a million-dollar machine and up, it's actually cheaper than those 1,500 servers.
IBD: What are some big drivers for your clients today?
Gelardi: Energy. If you look at a workload on a previous generation mainframe, z9, for the equivalent performance on a z10, I'm going to use 15% less energy for the same amount of performance.
Look at the (physical data-center space) in the industry. The question used to be, "How much space do you want?" The question now is, "How much energy are you going to consume?" It's more efficient to manage the work loads inside the larger (mainframe).
IBD: So, you're saying that using a mainframe addresses these modern problems better than servers?
IBD: Is it hard to convince people of that?
Gelardi: It's a legitimate question for clients who never had a mainframe. There are a few. (In those cases) it will probably be more complicated (to convince them).
However, a year or so ago we put out a press release about an entertainment (company). Their story was, "We're going to build a new gaming environment." Long story short, they said, "Why not use the mainframe?" There are new clients coming to the mainframe.
IBD: Do mainframes help other IBM businesses?
Gelardi: Clearly. I have very broad coverage. We are the server vendor. We have the storage capacity; we have the operating environment; we have the software stack, (including) Websphere, Tivoli, DB2. We have the services capabilities. We have the consulting capability. You can sort of go on. It becomes an ecosystem that is really valuable to the company at large.
IBD: What mainframe customers were active in the second quarter?
Gelardi: Interesting enough (given the state of the industry), the financial services sector was very strong. That was particularly true in the Americas and in Europe. We have a pretty broad spread (of users), but there is no question that financial services is a core market."