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IBM's merged groups might not bode well for storage

Kevin Komiega

The early days of 2003 will birth a big change for IBM Corp.'s Storage Systems Group. It will no longer exist. That is, at least not as a separate business unit.

Word leaked out last week that IBM is set to merge its Storage Systems Group and its Server Group on Jan. 1, 2003.

"Three years ago, we separated storage from the server group because we felt we were really behind EMC and everyone else," said IBM spokesperson Sandra Dressel.

She said IBM initially broke off its storage division with a "startup mentality" in order to level the competitive playing field. Dressel said that IBM has achieved what it needed to with its storage business as a separate entity.

Dressel said that combining the groups will give IBM three clearly defined groups: hardware, software and services.

"Customers don't want to buy the piece parts," she said.

Dressel was not specific about how this merger would directly impact storage except to say that it wouldn't. The only thing she said would change is the way the company sells storage. IBM is going for more of a "solutions" strategy, meaning it will sell servers, storage and software together.

The decision to merge the storage group with the server group was a result of the formation of the company's new on-demand computing group, the $10 billion brainchild of CEO and newly elected chairman of the board Samuel J. Palmisano.

Since becoming CEO, Palmisano has spearheaded IBM's acquisition of

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PricewaterhouseCoopers Consulting and several software companies, the pending sale of its hard disk drive business, a realignment of the microelectronics unit and the outsourcing of desktop PC manufacturing.

Industry expert John Webster, founder and senior analyst for the Nashua, N.H.-based Data Mobility Group LLC, said that IBM seems to be retracting from the hardware manufacturing business.

In an effort to streamline its disk drive and high-end storage businesses, IBM struck a deal last April with Hitachi Ltd. to sell its hard disk drive operation and form a new standalone joint venture. The deal resulted in approximately 7,000 job cuts. More evidence of IBM's withdrawal from hardware manufacturing came last July, when it sold its Mylex business unit's RAID (Redundant Array of Independent Disks) controllers, subsystems, hardware and software technologies to LSI Logic Corp., Milpitas, Calif.

"IBM is withdrawing by degrees from the storage hardware business," Webster said. "From a hardware perspective, in two or three years there's not going to be a lot of true blue 'invented here' IBM hardware."

Webster said that storage customers are returning to the ways of old. "The buying public used to associate servers and storage in the same breath," he said. "There's some evidence that buying habits are reverting back due to the economy."

Tony Prigmore, senior analyst with Enterprise Storage Group Inc., Milford, Mass., believes that having IBM's server and storage group in the same unit improves its ability to create and market solutions with vertical focus.

"The good news for users is that this reorganization will mean continued emphasis by IBM on maintaining its competitive advantage with solution bundling. The potential downside is that it is very unlikely any IBM storage will be marketed aggressively to non-IBM server platforms," he said.

"This will not cost IBM anything as they sell very little 'off-base' storage today, but it sure doesn't look like IBM plans to make this a future focus area for growth," Prigmore said.

Bill Zeitler, senior vice president of IBM's Server Group, will head the combined group. Linda Sanford, senior vice president and group executive for IBM Storage Systems, will take charge of the company's recently announced on-demand computing initiatives.

"They did make good strides with the [Enterprise Storage Server], but hopefully they will not let the storage side go down," said Bob Martoncik, a storage consultant with Compsat Technology Inc., Southfield, Mich.

Martoncik, who is an IBM end user and integrator, does not foresee IBM making any headway into the hardware market with storage because it is the one area where users hunt for bargains. "The hardware portion is a commodity," he said. "Users go for the best deal most of the time and do not want to be tied into a single vendor for everything."

Let us know what you think about the story; e-mail Kevin Komiega, News Writer

FOR MORE INFORMATION:

IBM to spend $10B on 'on-demand' computing

Shark doubles capacity, gets self-healing technology

IBM denies layoffs result of deal with Hitachi

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