Preface
Last week Bloor Research (North America) attended IBM's Software Group briefing held in Greenwich, Connecticut. At this meeting IBM demonstrated cohesion between its various software lines - and a strong focus on infrastructure development as a major differentiator.

This week, IBM held a similar briefing for hardware analysts in Armonk, New York (the company's headquarters). At this meeting IBM focused on:

1. New hardware offerings (especially Intel-based hardware);
2. Systems management as a key differentiator (especially IBM Director and Tivoli products and their respective roles); and,
3. The increasingly important role of Linux in IBM's hardware and software product plans.

What is important to note is that IBM believes that its:

• Ability to exploit the component-based architectures of its software products (Tivoli, Lotus, DB2, and WebSphere), combined with
• Ability to build extremely competitive hardware platforms (because the company is fast gaining market share - especially in the Intel server space - and accordingly can leverage volume discounts for competitive pricing advantage) will position IBM in a very advantageous competitive position when the IT marketplace wends its way out of its current slump.

From our perspective, after evaluating the competitive hardware/software maker landscape, we have to agree with IBM's logic on competitive advantage - the company is extremely well positioned to compete with suppliers like Sun and Dell in the hardware space; and companies like Oracle, Microsoft, BEA, and other infrastructure suppliers in the software space. More details on why we "buy" IBM's competitive perspective are provided in the "Coming Out of the Slump: IBM's Competitive Position" section of this report.

Key Message #1 - The Intel Message
With respect to Intel, IBM demonstrated new interest and new vigour regarding building Intel-based servers. As demonstrated in Figure 1, IBM now claims to offer the most current Intel server product line in the industry (with some of its competitors still offering Pentium III server solutions while IBM has completely refreshed its product line with the latest Xeon chip sets). This is significant because only 18 months ago Bloor NA would have adjudged IBM a "follower" in producing Intel platforms - now the company is demonstrating its Intel commitment by providing leadership Intel products.

Figure 1 - IBM Now Demonstrating Intel Leadership
Source: IBM Corporation - September, 2002

But the Intel message did not end with this description of IBM's breadth, depth, and currency (up-to-datedness). IBM also spent a lot of time emphasizing its forthcoming, Intel-based BladeCenter product line.

BladeCenter
'Blades' are essentially CPU's on a board (1U configurations). IBM's BladeCenter is essentially a chassis with a backplane (that helps eliminate a ton of wiring); a CD-ROM and floppy; with integrated network and fibre switches. The value proposition being put forward by IBM with its BladeCenter is one of simplified management (helps reduce administrative costs); resiliency (no single point of failure in the shared infrastructure) as well as less space (small footprint); and less power consumption.

To drive these themes home, IBM brought in early BladeCenter adopter America-On-Line (a huge user of processing power and networking hardware). In a glowing testimonial, AOL's representative described BladeCenter as a "disruptive technology" because of its potential to handle AOL's computing and networking needs - as well as its ability to reduce operating systems expenditure costs (because BladeCenter can run Linux while handling AOL's computing and networking needs). In fact, the AOL representative stated that he expects AOL to become one of the worlds biggest Linux users over the next few years (and its reasonable to extrapolate that much of that Linux will run on BladeCenter).

BladeCenter solves three problems for AOL. First, AOL spends hundreds of millions of dollars to build datacenters. BladeCenters will enable AOL to pack more processing into its datacenter buildings - forestalling the need to build expansion buildings to house more processors as AOL membership and services expand. Second, BladeCenter helps reduce the amount of wiring between processors (a problem the AOL representative described as "a real headache" - calling it "Wire Management"). Third, the ease of deployment and management of BladeCenter helps reduce administrative costs - thanks to IBM's sophisticated management offerings for BladeCenter systems/network administrators can get a better, more holistic view of what's happening in their computing environment (enabling AOL to solve issues more quickly - potentially with fewer people).

BladeCenter also has one other interesting characteristic worth mentioning: packaged in a chassis that handles up to 14 blades is the communications hardware necessary to network BladeCenters with other processors and devices. This means that BladeCenters help eliminate the need for the purchase of additional, separate switches and routers - and thereby help greatly reduce networking costs and footprint. One has to wonder what this new development means to companies like Cisco...

Key Message #2 - The Systems Management Message
IBM builds a lot of manageability into its hardware offerings (network control, power reset, status, event alerts, indicators). But this hardware meeting also highlighted two software products - IBM Director and Tivoli.

IBM Director was especially worthy of note for its ability to help perform hardware discovery, hardware configuration, operating system installation, and server provisioning functions. This product is extremely useful for gathering information on Linux and Windows servers within an enterprise (to potentially help with server consolidation); and it's critical for use in deploying BladeCenter.

Tivoli was heavily featured at the IBM hardware briefing because it demonstrates IBM's commitment to automated, enterprise-wide, heterogeneous system, network, application, and database management (IBM terms this "autonomic computing"). IBM's Tivoli is being geared to provide self-managing systems (self-configuration; self-protection; self-optimising, self-healing) for IBM and non-IBM devices and programs. And IBM believes that this level of management will ultimately become one of the most fundamental differentiating factors between IBM and its competitors for hardware purchases over time.

Key Message #3 - The Linux Message
The third theme of the hardware briefing centred on Linux. IBM strongly believes that Linux is enterprise ready - and is prepared to demonstrate this readiness using real-world customer examples across its p-, i-, x-, and z- product lines. The company spent a lot of time describing the advances its has made in Linux scalability, reliability, and security - and also described total cost of ownership dynamics that surround Linux purchases. But...

The breakaway news on the Linux front was IBM's statement of intention to migrate AIX (IBM's UNIX) functionality to Linux! AIX is one of the computing industry's premier implementations of UNIX - especially known for its ability to cluster and scale. While IBM continues to see a continuing important role for AIX, the company, through a process known as 'cascading', intends to migrate much AIX functionality to Linux over time. This statement bears close watching - because if IBM succeeds in migrating AIX extensions to Linux the company will have the most powerful, reliable, and scalable implementation of Linux in the marketplace. And when combined with the company's component-based infrastructure, the combination of IBM infrastructure software products (especially the management products) as well as IBM PowerPC and Intel hardware offerings will be extremely difficult to beat.

Coming Out of the Slump: IBM's Competitive Position
Just suppose that there is, as many IT sector financial analysts claim, a building pent-up demand for IT products and services. How will this pent-up demand translate into buying patterns?

IBM believes that its customers want up-to-date, reliable, scalable hardware - and the option to choose an operating environment that can best service the customer's application needs. IBM also believes that most of its customers do not want to spend a lot of time and money integrating messaging systems, databases, systems management, and Web portals (so the company provides completely integrated, turnkey infrastructure environments - or for some customers, modules that can be mixed-and-matched to meet specific application environment needs). By making use of turnkey infrastructure that runs across multiple hardware and operating environments (z-OS, OS400, AIX UNIX, Linux, and Windows), IBM believes that its customers will turn their attention to areas that promise a bigger return on their investment - like application integration or business process management.

If you use these metrics (infrastructure and hardware) and create a composite picture, IBM would find itself in a very favourable position (see Figure 2). As for whether this assessment for IBM is fair, most of IBM's assessment matches our perception of its infrastructure/hardware competitors, with the exception of the Sun assessment. We disagree with the "defensive" and "sub-par" qualifiers.

Figure 2 - IBM Competitive Position
Source: IBM Corporation - September, 2002

Summary Observations
IBM's top messages at its hardware briefing for analysts focused on:

1. The expansiveness of its Intel line (and future Intel-based BladeCenter);
2. Systems management; and,
3. Linux.

With respect to Intel, it is astonishing how IBM has expanded its Intel server line. IBM competitors should truly be worried. It should also be noticed that IBM is looking to use its forthcoming Intel-based BladeCenter product line as a disruptive technology. Intel-based BladeCenter (especially BladeCenter running Linux) has the potential to challenge Microsoft clusters and threaten more expensive and bulky UNIX clusters.

With respect to management, it should not be overlooked that IBM spent a lot of time in both the Software Group meeting and in the hardware briefing describing its plans for system/network/application/database management. IBM sees this area as a key differentiator for its hardware and infrastructure offerings - and intends to keep rolling out self-managing hardware and software products on a regular basis for the foreseeable future. IBM's Director and Tivoli product roadmap and products are going to create some real headaches for IBM competitors from a differentiation point-of-view.

Finally, with regard to Linux: the combination of IBM infrastructure products, AIX cascading, and IBM Intel platform positioning (along with the company's same-level-of-support-as-can-be obtained-on-AIX promise) make the IBM Linux proposition quite compelling. This proposition should cause Microsoft some heartburn - but it presents a real-and-present threat to the likes of infrastructure companies such as BEA, Oracle, and Sun who make their livings selling infrastructure products.