Dinner At Crabtree’s Kittle House
I attended an IBM STG systems software group analyst summit in Somers last week. Our hosts took us out to Crabtree’s Kittle House for dinner – a favourite of Bill Clinton’s apparently.
Although he had no formal presentation in the conference itself, STG’s head Rod Adkins came and talked to us for half an hour in transit from one meeting to another. Those of us, like me, who have followed IBM servers for decades have know Rod for a long time and he’s brought a thorough understanding of IBM’s research and market capabilities to his role.
After thanking the analysts for their contributions to IBM’s success, Rod spoke about the attributes of Smarter Computing – a subject we’ve covered here. He also addressed STG’s priorities and talked a little about IBM’s competition. I thought it would be interesting for our readers to learn about his thoughts.
The Three Attributes Of Smarter Computing
Rod summarised the attributes of Smarter Computing as follows:
- Tuned For The Task – IBM has made deep investments in fitting workloads to systems, which we see as particularly strong in the transaction processing, retail and analytics areas; Rod talked about these systems as ‘tuned for the task’, which raised some interesting comments
- Designed For Data – also a major part of the systems software discussion, IBM sees itself as a player in the ‘Big Data’ area; in fact Rod suggested that Oracle’s Exadata is more old-fashioned because it’s wrapped around a traditional relational database; for IBM data efficiency is key, encompassing de-duplication, archiving, back-up and other areas; Rod pointed out that its Watson supercomputer had to answer Jeopardy! Questions in two and a quarter seconds – the first second to search 50 million lines of information, the second – to arrive at a statistical answer based on confidence levels and the last quarter of a second to respond; outside this illustrative model IBM is finding associated applications in Healthcare and Finance areas
- Managed Through The Cloud – a process Rod describes as systems ‘plumbed the right way’ incorporating simplification, provisioning and automation
We’ve been a bit critical about the choice of the ‘Smarter Computing’ name in the past, so it was fun to hear Rod talk about how they chose it; he raised a laugh by saying his engineering background had led to him to suggest ‘Hybrid Systems’ initially. They had also discussed using ‘Infrastructure’ and other words in their brainstorming.
STG’s Four Strategic Priorities
STG has performed very well recently and Rod shared its aims for 2015, which calls for a significant increase in its contribution to Earnings per Share. Intriguingly he said that STG’s planned growth will be driven 35% from revenue growth and 65% from margin expansion and operation efficiencies.
Rod has set four strategic priorities for STG. In particular:
- Growth Markets – emerging countries accounted for 30% of STG revenues in 2010; it plans for this to increase to 40% by 2014
- Analytics – as its recent introductions illustrated
- Smarter Computing – a subject which extends beyond STG to the whole of IBM
- Service Providers – which we note is a strong industry sector for IBM, especially in Europe
Rod Answered Questions On Integration, Cloud And IBM’s Competition
I asked Rod about whether STG was splitting its approach between workload ‘appliances’ and infrastructure. He responded that that wasn’t what IBM was doing – rather it was building composite systems influenced by the attributes of specific workloads. He admitted that infrastructure was a broader subject. His customers want to lower the costs of their operations and to have better integration, which are addressed by ‘appliances’ such as IBM’s Netezza – a company IBM acquired in 2010 for $1.7 billion.
On Cloud Computing Rod suggested that ‘we had confused the industry’ (although I’m not sure whether he meant us as analysts, IBM or the whole industry). He asserted that it’s not just about cheap x86 servers, but stretches to cover storage and security – again subjects which we discussed at length during our two-day meeting.
On IBM’s competition Rod talked up IBM’s strategy of course: indicating that those companies who invest in real R&D rather than just marketing and packaging will win out. In his view HP isn’t spending much in R&D; he believes Dell is facing strong competition from white box manufacturers in Public Clouds in which its DCS group was initially successful; Oracle wanted to become more like IBM, but bought a company (Sun) with ‘an arrow in its back’. He indicated that IBM does all of the innovation for System z, there is lots of third part contributions to Power and its System x is like the rest of the industry. In comparison he believes Oracle has ‘a lock-in strategy’.
Some Conclusions – IBM Has Advantages In The Shifting Systems Market
IBM is very well positioned in the shift from a horizontal to a vertical market model. Its ownership of important applications allows it to address workload optimisation from its own resources, as we’ve noted before. I’m not surprised, but don’t necessarily agree, with his comments on its competition. Oracle is leading the shift towards vertical integration, but needs to smarten up the hardware and systems software assets acquired from Sun. HP is challenged by its major dependence on a horizontal market definition, which is becoming less relevant every day. We’ve noted before that the partnership it recently announced with Microsoft has to be very different for it to succeed. Dell is continuing to define its presence as a narrower, more relevant set of requirements.
In any case the success of system vendors, the resurgence of data centre spending after the recession, the growth of appliances and Cloud Computing are all areas which IBM is in a great position to exploit. We will continue to watch Rod’s group with interest of course.