Big Blue's System z mainframes provide the power to run heavy-duty applications—as long as you can negotiate the right price.

Suffering from a case of data overload? Sick of poor performance from distributed computing systems? If so, IBM's System z mainframes may be the cure for your malaise—as long as you can negotiate the right price for the treatment.

It's been years since mainframes were in their heyday. But they remain entrenched in many corporations, like ExxonMobil, which has used the technology for almost 40 years for 3D seismic imaging.

Mainframe systems are designed to handle massive amounts of data processing functions centrally; the information typically was accessed from "dumb" terminals that simply displayed what the mainframe returned. This architecture, however, fell from favor as too expensive and unwieldy. Instead, the dominant application model became client/server, in which processing functions are split between cheaper server systems on the back end and a user's own computer.

But now, some companies are making their way back to mainframe big iron, or they're expanding their use of it. And Big Blue, customers say, makes the best mainframe hardware on the market. To many, its System z mainframes, the new brand name for what was previously called the zSeries, provides unmatched reliability, high-capacity performance and security.

While pricey—an entry-level z9 system, for example, starts at $100,000—the savings can make a mainframe worth the investment. Take the experience of Mark Shackelford, director of information services with Baldor Electric. The maker of electrical industrial parts used an IBM z990 to consolidate SAP applications previously running on 10 Windows servers and six Unix servers. Shackelford says that helped cut his costs by 50%. In large part, that's because just three people are required to manage the mainframe; it took 20 to oversee his old systems. Plus, his 6,000-square-foot computing room is now "basically empty."

But some customers have felt pinched by the high list prices for mainframe software. In 2002, Blue Cross Blue Shield of Tennessee wanted to offer its 2 million members new information on its Web site, including applications to find doctors and hospitals and look up claims information.

Bob Venable, manager of enterprise systems at the health insurance provider, struggled with rising mainframe software costs. The company was using multiple mainframe applications (to handle tasks like monitoring system performance) from several vendors, including BMC and CA.

So, Venable called in IBM to figure out the most cost-effective programs to run on its zSeries servers. The result: He says the company saved more than $14 million in data-processing costs in less than two years, by consolidating all its mainframe programs on IBM's versions. "The real savings on the table these days are in the software," he says. "It's picking your software to minimize the costs of your hardware."

Marq Youngblood, CIO of the Oklahoma Department of Human Services, ran into a similar software-pricing wall. In 2002, a key child-welfare database running on a Hewlett-Packard Unix platform faltered. Youngblood and his team decided to move the application to an IBM mainframe platform running Linux.

But IBM and third-party mainframe programs "were too costly," Youngblood says. After a lengthy evaluation and negotiation process, Youngblood and his team decided to use 25 of IBM's mainframe applications. (He would not disclose details of the deal.) "We addressed [cost] and got to a reasonable point," he says. "That's why we're still on the mainframe."

What's more, newer IBM mainframes are less expensive relative to the processing power they deliver. That's key for Big Blue, as customers consider lower-priced, high-performance servers available from competitors and IBM itself. Between 2004 and 2005, IBM's mainframe system revenue dropped 7.6%, according to company reports. At the same time, the volume of mainframe hardware IBM sold—as measured in million instructions per second, or MIPS, a standard unit of mainframe computing power—grew 7%.

Asked to explain this dynamic, an IBM spokesman says that newer specialty mainframe processors (such as those designed to run Linux) have "altered the cycle of sales" for new systems. In other words, customers should be getting more bang for their buck. According to IBM, the System z9 109, introduced last summer, has a 40% better price/performance ratio (the cost of a system divided by processing capacity) than the z990, its previous highest-end model.

Still, more attractive pricing isn't everything. Youngblood notes that his team hit a few snags. For instance, one of the IBM software products (which he wouldn't identify) didn't work on the new platform, despite IBM's promises. When asked for a response, IBM would not comment.

Youngblood says the disruption was minor—his team got the software in question running with help from IBM—but points out that due diligence is critical for any big project. "You don't take a vendor's word," he says, "not even IBM's."

The Company HEADQUARTERS: New Orchard Rd., Armonk, NY 10504 PHONE: (914) 499-1900 TICKER: IBM (NYSE) URL: www.ibm.com EMPLOYEES: 329,000 KEY EXECUTIVES: Samuel J. Palmisano, chairman & CEO; Paul M. Horn, director of research; James B. Stallings, general manager, System z mainframe division BUSINESSES: Selling servers, software, storage and semiconductor products, as well as consulting services. PRODUCTS: System z9 109, the latest hardware offering, includes new middleware, storage and networking programs, and supports seven operating systems; zSeries 990 provides three times more processing capacity than the previous z900 model. MARKET SIZE: $49.5 billion, 2005 (Gartner) COMPETITORS: Fujitsu Siemens Computers, Hitachi, NCR, Unisys The Technology Don't put all your eggs in one basket—unless, say IBM's mainframe customers, one basket is powerful and reliable enough to do the job. They say Big Blue's System z line takes virtualization technology, which lets many programs run on the same underlying hardware, to a new level. On a System z mainframe, each program is isolated as if it were running on its own separate piece of hardware, ensuring that individual applications don't disrupt the functioning of others. Part of the System z virtualization technology allows customers to segment the mainframe into what IBM calls logical partitions, or LPARs. These segments allow the company to run the same operating systems on different platforms, as if they were in their own server. Harry Roberts, CIO at Boscov's, the largest family-owned department store chain in the U.S. with yearly revenues of more than $1 billion, consolidated the company's e-commerce system and other business applications that ran on 40 Microsoft Windows NT servers onto just one zSeries 900 server. The mainframe runs 30 virtual Linux servers in logical partitions powered by five processors—called Integrated Facilities for Linux, specially designed chips for running that operating system—on IBM's z/VM (Virtual Machine) operating system. The virtualized Linux processors, Roberts says, provide "enough capacity to run our entire business without a problem." Reference Checks Checkfree Robert Catterall Dir., Engineering bcatterall@checkfree.com Project: Atlanta-based electronic billing and payment provider runs its core transaction systems on zSeries servers, with IBM's DB2 Universal Database. Oklahoma Department of Human Services Marq Youngblood CIO marq.youngblood@okdhs.gov Project: State's social-services agency migrated its child-welfare database to a zSeries system. Boscov's Harry Roberts CIO hroberts@boscovs.com Project: Department-store chain used IBM zSeries servers to consolidate its server farm and bulk up access to sales performance statistics. Blue Cross Blue Shield of Tennessee Bob Venable Mgr., Enterprise Systems bob_venable@bcbst.com Project: Health-care insurance carrier expanded zSeries capacity to host Web-facing applications. MIB Group Alex Klevitsky aklevitsky@mib.com Dir., Enterprise Architecture Project: Westwood, Mass.-based provider of database and risk management services moved its key fraud-detection service to a zSeries server. Baldor Electric Mark Shackelford Dir., IS mshackelford@baldor.com Project: Maker of electrical machinery parts consolidated SAP applications and IBM DB2 databases onto one z990 server to speed up order processes.

IBM Financials Results*

2004 2005 Revenue, systems &technology group** $20.98B $19.97B Hardware group† Revenue $23.86B $30.71B Gross profit $8.72B $9.51B Gross margin 36.5% 31.0%

* For fiscal years ended Dec. 31
** Includes servers, storage systems, microelectronics, engineering and technology services, retail store solutions and printer systems
† Includes systems and technology group, plus personal computer division, which IBM sold to Lenovo in April 2005

Source: IBM Regulatory Filings


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