IBM's software business contributes $20 billion of IBM's revenue and 40 percent of its profits. Suffice to say, it's an important part of Big Blue's market strategy to ensure that the software division performs at or above expectations every year.
Steve Mills, senior vice president and group executive, joined IBM in 1974 and has helped shape the software business as its grown to more than 50,000 employees, including 25,000 software developers and 15,000 sales and technical support personnel in more than 150 countries. That total includes the products and personnel from the more than 50 companies IBM has acquired since 2000.
Steve Mills, SVP IBM software.
In 2009 alone, IBM acquired no fewer than five companies: Lombardi, a privately held provider of business process management (BPM) software, data discovery software firm Exeros, database security firm Guardium, security provider Ounce Labs, and analytics provider SPSS.
The company also launched a number of cloud-oriented products and services in 2009, including a new lab in Hong Kong, a Cloud Academy program designed to help educators and students pursue cloud-computing initiatives and better take advantage of collaboration technology in their studies; and a number of additions to the LotusLive hosted collaboration service.
In an exclusive interview with CNET News, Mills shared how the company is looking at the technology landscape in 2010 and beyond.
Question: Software strategy is obviously an important part of IBM's business model. How long of a time-to-market horizon does IBM look for with new software products?
Mills: We tend to look at product groupings and product families--customers don't use a single product. Enterprises are looking for complete solutions even if they don't buy them all at one time. That means that we're looking for leverage in software we create or acquire--how do the products complement each other and how can plan ahead for what customers need.
As you probably know, IBM is big on process (laughs). The software business is no different, and we have a method to how we develop markets: customer, volume, revenue, and profit. You have to set the baseline to figure out how the product fits into the marketplace, you learn this from talking to customers. Time to market and rapid iteration are important aspects that come into play in relation to the other components but you always learn more in the market from customers than in the lab.
When we look at how well a piece of software is doing, as well as its potential, we look at volume of customers, industries, installed base, etc., and what's the trajectory of the installation. Growth objectives are unique to each product, and you rise on a series of plateaus. You have to fill the gaps that inhibit the growth. And it's not always obvious. We pay a lot of attention to our customers and also the trends in the market.
How does cloud computing play into your technology focus areas?
Mills: Cloud computing is a transformative part of the Darwinian IT phenomenon. Many companies are not interested in operating their own infrastructure as they don't see it as a competitive advantage. In which case they want to get the job done at a lower cost. Businesses realize they can grow because of IT and they want to continue to use IT to keep things growing, but that doesn't mean they need to own and manage every piece of their infrastructure.
Companies like American Express, Salesforce.com, and ADP are great examples. We see those types of system designs and customer interactivity as common models. IBM has long offered managed business process services and supported other big enterprise services.
These offerings make logical sense, but they don't always solve every problem. The hybrid public/private model is very appealing to our customers and not dramatically different than using a hosting provider.
Not everyone will be comfortable with the cloud model--it's all part of a continuum. There will be Salesforce.com on one hand, and on the other customers that run everything behind the firewall. Success doesn't mean that corporations will push everything into the cloud but the inherent cost-benefits are there and more companies are interested. That's part of the evolution.
How do you look at open-source projects/products/companies?
Mills: The hybrid companies like Red Hat have interesting models for open source. They take all the code and put it together for you, but we tend to look at open source as building blocks for larger solutions. IBM ingests a lot of open-source code and we provide a huge amount of development and engineering expertise to the various projects that we support--like Linux and the Apache server.
We focus a lot of our energy on open standards and platforms. And if there are open source projects that we believe in we'll invest resources to support them.
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IBM decided to close 2009 with a bang by acquiring Lombardi, a privately held provider of business process management (BPM) software. Big Blue racked up a number of acquisitions this year including: data discovery software firm Exeros, database security firm Guardium, security provider Ounce Labs, and analytics provider SPSS.
Lombardi marks IBM's 90th acquisition since 2003. That's a lot of companies to digest.
With Lombardi, IBM strengthens its presence in BPM by effectively capturing the customers it doesn't already have. IBM currently has more than 5,000 BPM customers in about 30 countries and growing.
According to Lombardi CEO Rod Favaron, the company has about 300 enterprise-level customers with a high percentage shared with IBM. Lombardi has a shockingly impressive customer list, including Allianz Group, Aflac, Barlays Global Investors, Dell, FETAC, Ford Motor, Hasbro, ING Direct, Intel, Maritz Travel, National, Bank of Canada, National Institute of Health, Safety-Kleen, T-Mobile, UCLH, and several governmental agencies.
It's generally been a quiet year for technology merger and acquisition deals with the 2009 value total for tech M&A activity reaching $142 billion, according to recent data from technology investment research firm The 451 Group. To provide context, the second quarter of 2008 alone saw $173 billion in tech M&A deals. The median deal size in 2009 was $40 million, contrasted with a median of $43 million in 2008 and $100 million in 2007.
From January to November 2009 there were only 31 technology transactions valued at $1 billion or more, and The 451 Group reports that all of the high-multiple deals took place in the second half of 2009, resulting in M&A spending running 50 percent higher than in the first two quarters. Notable deals include Dell's purchase of Perot Systems and Cisco Systems' pair of $3 billion acquisitions in October.
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IBM is making yet another acquisition, this one a leading provider of business process management software.
Big Blue announced on Wednesday its intention to purchase Lombardi, a privately-held firm that sells business process management (BPM) software and services. BPM is designed to help companies cut costs and improve efficiency by automating and integrating key business processes. This encompasses such areas as product planning, supply chain, product procurement, human resources, and IT services.
Market research firm IDC forecasts that the market for BPM software will reach $3 billion by 2013, up from $1.7 billion this year--a compounded annual growth rate of almost 15 percent.
"Any discussion on business improvement inevitably leads to improving the processes that are at the heart of every company," said Craig Hayman, general manager for IBM Application and Integration Middleware, in a statement. "Recognizing this, IBM has strengthened its presence and investments in business process and integration software to meet these growing client demands. Lombardi fills out our company's portfolio in this key area."
Based in Austin, Texas, with offices in Europe, Lombardi has enjoyed record sales over the past few years. For fiscal 2008, the company's revenues almost doubled, rising 47 percent over those in 2007. Lombardi's customers run the gamut to include financial services, government, health care, insurance, manufacturing, and telecommunications.
Both companies see the acquisition as a nice fit since Lombardi's Teamworks development and Blueprint documentation products already work under IBM's WebSphere environment. The two also enjoy many of the same customers and partners, which should pave the way for a smooth transition. IBM also noted that its existing technologies and those of Lombardi won't be changed, so customers can continue to use their current systems.
"Lombardi's had a long-standing technical partnership with IBM--we were one of the first vendors in the BPM space to deliver a product running on WebSphere," wrote Lombari CEO Rod Favaron in his blog on Wednesday. "We understand IBM's strengths and we know how they complement ours as well. We also know that there is a great fit for both Teamworks and Blueprint into the overall IBM BPM portfolio."
IBM has been on an acquisition streak this past year, trying to beef up its offerings to business customers. The company has so far gobbled up data discovery software firm Exeros, database security firm Guardium, security provider Ounce Labs, and analytics provider SPSS.
Following the usual regulatory approvals, Lombardi will be integrated into IBM. No specific closing date or financial terms were disclosed.
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IBM)
IBM is continuing its investment in cloud computing with a new lab in Hong Kong, expanding the presence of its IBM China Development Laboratory (CDL), the company's largest with more than 5,000 developers on staff.
The laboratory builds on the e-mail technology of Outblaze Limited, a Hong Kong-based company whose messaging assets were acquired by IBM earlier this year and incorporated into the Lotus brand. The new lab claims to be the first of its kind in Hong Kong and shows both the importance of global development teams and IBM's focus on growth in emerging markets, a user segment that is theoretically more adaptable to different methods of application consumption and likely well-acquainted with browser-based applications.
Overall, the fourth quarter of 2009 has seen several interesting cloud-related announcements from IBM, including the LotusLive service that launched in October and already claims more than 18 million active users. Big Blue also launched the Cloud Academy program designed to help educators and students pursue cloud-computing initiatives and better take advantage of collaboration technology in their studies.
IBM has taken a leading role in the development and adoption of cloud services while other large vendors such as SAP, HP, Oracle, Sun and Microsoft have all made cloud-oriented announcements with few proof points that their efforts will be successful. There is no certainty that IBM will be successful either, but the company has at least made consistent progress in both technology and user adoption.
IBM representatives told me that the company will continue to focus on delivering "the most reliable and secure cloud services" architected to meet the needs of consumers as well as their mainstay enterprise buying audience. Totally logical, and still surprising that the other big vendors haven't figured out how to attract their core user base to cloud platforms and services.
The cloud remains a bit of an anomaly in the tech world, dominated by Amazon, an e-commerce site, while stalwart IT vendors like Microsoft continue to take baby steps toward mainstreaming their efforts.
My blogging colleague, James Urquhart, wrote this week about Microsoft's new business unit that merges its cloud and on-premise server group into one development team, which makes sense, at least in theory.
Practically speaking, Microsoft is way behind the curve and has a lot of ground to make. I've written in the past that the opportunity is theirs to lose, and it's hard to see how they plan to win, even with this new structure.
IBM will release a radical new chip next year that will go into a University of Illinois supercomputer in a quest to build what may become the world's fastest supercomputer.
That university's supercomputer center is a storied place, home to both famous fictional and real supercomputers. The notorious HAL 9000 sentient supercomputer in "2001: A Space Odyssey" was built in Urbana, Illinois, presumably on the University of Illinois Urbana-Champaign campus.
The Power7 chip die.
(Credit: IBM)Though not aspiring to artificial intelligence, the IBM Blue Waters project supercomputer, like the HAL 9000 series, will be able to do massively complex calculations in an instant and, like HAL, be built in Urbana-Champaign. It is being housed in a special building on the Urbana-Champaign campus specifically for the computer that will theoretically be capable of achieving 10 petaflops, about 10 times as fast as the fastest supercomputer today. (A petaflop is 1 quadrillion floating point operations per second, a key indicator of supercomputer performance.)
Part of the National Center for Supercomputing Applications (NCSA) at the University of Illinois, it will be the largest publicly accessible supercomputer in the world when it's turned on sometime in 2011.
Supercomputers are essentially a large collection of microprocessors acting in concert on a complex problem. As processor designs go, the upcoming Blue Waters' IBM Power7 processor--due in the first half of 2010--is a big step for IBM: the processor integrates the features of a chip used in its "Roadrunner" supercomputer, which has often been ranked as the fastest supercomputer in the world. Power7 fuses the flagship Power chip design with key technology from a separate "Cell" processor--the latter was part of IBM's Roadrunner system at the Los Alamos National Laboratory, according to Bradley McCredie, an IBM Fellow in the Systems and Technology Group.
"We took some of that genetic material from the Cell program--ways to do floating point (calculations)--and embedded that right into the Power7 core," McCredie said in an interview with CNET.
But that's not the only thing that makes the Power7 chip special. It integrates eight processing cores in one chip package and each core can execute four tasks--called "threads"--turning an individual chip into a virtual 32-core processor. As a yardstick, Intel's high-end Xeon processors typically have two threads per processing core.
Artist rendering of University of Illinois center that will house IBM's Blue Waters supercomputer
(Credit: University of Illinois)IBM is also using novel memory technology. Widely used "static" RAM memory, used as the on-chip memory in almost all processors today, can add as much as a billion transistors to high-end processors. IBM wanted to avoid these ballooning--and costly--chip counts and elected to use a technology called E-DRAM, keeping the total number of transistors to 1.2 billion. "The equivalent number of transistors if we had done all of the cache in (static RAM) is well in excess of two billion," McCredie said.
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Third-quarter sales of servers across the globe showed a 17.3 percent decline from the same quarter in 2008, sagging to $10.4 billion, according to IDC's Worldwide Quarterly Server Tracker.
But server shipments improved, falling only 17.9 percent for the quarter, compared with 30.1 percent in the second quarter, noted the IDC report released Wednesday. Even more promising, shipments grew at a healthy 12.4 percent over the second quarter, the market's largest sequential quarterly gain since 2005.
All three server segments tracked by IDC--volume, midrange enterprise, and high-end enterprise--saw lower third-quarter sales compared with the same quarter last year. Revenue for midrange enterprise servers fell 23.4 percent, while sales of high-end enterprise servers dropped 19.3 percent.
But revenue for volume servers, the lower end of the market, improved over the second quarter and experienced their lowest drop since the third quarter of 2008.
"The worldwide server market exceeded expectations in the third quarter with improving x86 server demand leading the way, which was driven in part by the infrastructure refresh momentum that is building in many geographies," said Matt Eastwood, IDC's group vice president of Enterprise Platforms, in a statement. "In fact, x86 server revenues experienced their largest sequential quarterly revenue increase in nearly five years."
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IDC)
Among the major players in the server industry, IBM and Hewlett-Packard vied for first place in both sales and market share with a statistical tie. Big Blue took a 31.8 percent slice of the market, with a 12.9 percent drop in third-quarter sales to $3.3 billion. HP grabbed a 30.9 market share as its revenues fell 16.8 percent to $3.2 billion.
Third-place Dell saw its sales decline only 6.8 percent to $1.4 billion, helping it capture a 13.5 percent share of the market.
With its future cloudy, pending regulatory approval of its takeover by Oracle, Sun Microsystems suffered a 35 percent drop in third-quarter sales to $778 million. Reports have surfaced that IBM and HP, among others, have taken advantage of the uncertainty surrounding Sun to lure over several of its customers.
Bringing up the rear of the top five was Fujitsu, which saw an 8.2 percent drop in sales to $594 million, carving out a 5.7 percent slice of the market, an improvement over its position from last year's third quarter.
Though optimistic that the market will continue to improve in the fourth quarter and beyond, IDC is still waiting to see how the recovery plays out.
"IDC believes that platform migration is once again gaining steam in the market and the post-recession server deployment patterns will establish the technology agenda in the datacenter for the next business cycle," said Eastwood. "For server vendors, after five quarters of market contraction, the next few quarters will be critical to determining the technology platform winners and losers in the years ahead."
All top five server vendors globally saw declines in revenue and shipment in the third quarter of 2009, with Sun Microsystems registering the biggest fall, according to the latest figures from Gartner.
In a report released Monday, the research firm noted that Sun saw its server revenue drop 32 percent and unit shipments dip 38 percent in the third quarter, compared to the same period last year.
IBM experienced a 12 percent decline in revenue growth, though it clocked the highest revenue in the market for the quarter at $3.4 billion. Hewlett-Packard and Fujitsu saw their revenue decline 15 percent and nearly 11 percent, respectively. Dell was the only vendor with a single-digit revenue decline (5 percent) among the top 5 vendors, Gartner said.
Read more of "Sun sets lowest in server market at ZDNet Asia.
IBM said Monday that it has acquired database security firm Guardium.
Guardium is a leading vendor in monitoring and protecting databases for large enterprises. In addition to securing the data and watching database activity, Guardium's technology can automate certain tasks to assist businesses with regulatory compliance, said IBM. Big Blue expects the acquisition to help its customers better shield their critical databases against both external and internal threats.
Guardium can check for specific patterns and anomalies when information is accessed, said IBM, allowing enterprises to maintain the integrity of their data. Guardium's technology can also detect fraud and unauthorized access to a database by way of an enterprise application, such as a company's ERP or CRM software.
"Organizations are grappling with government mandates, industry standards and business demands to ensure that their critical data is protected against internal and external threats," said Arvind Krishna, general manager of IBM Information Management, in a statement. "This acquisition is another significant step in our abilities to help clients govern and monitor their data, and ultimately make their information more secure throughout its lifecycle."
Guardium, a privately held company based in Waltham, Mass., will be integrated into IBM's Information Management Software portfolio.
Big Blue hasn't been shy about buying companies this year to increase the scope of its business services. In July, the company picked up analytics and information forecaster SPSS for $1.2 billion. With security a vital need for its customers, IBM also acquired security provider Ounce Labs around the same time.
Financial terms of the Guardium deal were not disclosed.
IBM researchers have cooked up a quick medical diagnostic testing system based on a silicon chip that can get by on a small sample and test for multiple diseases.
The breakthrough to be announced Tuesday means that physicians can test a patient immediately following a heart attack to improve survival rates. The test checks for disease markers, proteins that can be detected in blood using "capillary action force." In a nutshell, capillary forces refer to the tendency of a liquid to rise in narrow tubes or be drawn into a small opening.
The IBM Research-Zurich findings will be detailed in the December issue of the Royal Society of Chemistry. (See reprint PDF.)
Read more of "IBM researchers speed up medical diagnostic testing via chip" at ZDNet's Between the Lines.
IBM on Monday is expected to unveil Blue Insight, a massive business analytics cloud that will hold more than a petabyte of data. This internal cloud computing environment will be the basis for future external services.
Internally, IBM's effort is dubbed Blue Insight, a business analytics cloud that will give 200,000 employees access to key corporate data around the world. Blue Insight will suck in data from 100 different data stores and warehouses. The data will then be dished out to salespeople and developers.
According to IBM, Blue Insight is a showcase of the "eat your own dog food" mantra. The system is built using Cognos, IBM's business intelligence software, and hardware systems such as System Z, the company's mainframe (right).
Going forward, IBM said it will add structured and unstructured data to Blue Insight. Some of this data will include revenue forecasts and sales quotas, product breakdowns, queries from real-time data and inventory levels and defects.
Read more of "IBM launches private business analytics cloud; Eyes 'easily consumable' BI for the masses" at ZDNet.
