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Year in review: IBM takes charge of its destiny

Aggressive is the one word that describes IBM's product and marketing strategy this year. In almost every instance, Big Blue took the high road in making strategic decisions that would affect how it would be positioned as a company and, ultimately, how its product line would be viewed. This was the year Big Blue took risks.

While it was a downer year for IBM financially, the anointment of a handful of high-profile executives was able to at least give the perception that things were under control -- at least we believed these leaders could save IBM from itself. And, therein lies the good news. Big Blue seemed to be able to take its blows in stride.

From its colossal re-branding announcement to the implementation of Linux across all its platforms, IBM made it clear to the industry that its systems were powerful tools for the emerging e-business market and spent millions on ad campaigns to promote the "new" machines.

Not willing to let itself be ousted from one of the fastest-growing segments of the technology market, IBM introduced a powerful storage system that would force industry powerhouses such as EMC to fight for their leadership positions.

Clearly, IBM was not only aggressive in its positioning of products -- including those from its database line and Lotus subsidiary -- but it was also vocally aggressive, pointing the finger at companies such as EMC and Oracle as if to say, "That's right. We're coming after you." And, it did.

But the company that was known for its proprietary systems reached out to long-time rivals, most notably Microsoft, to develop standards such as XML. By doing so, it admitted that in this economy no company can or should stand alone. With a long list of partnership announcements, one can only assume that this is a new IBM.

Still, critics say IBM isn't aggressive enough, noting its re-branding strategy lacks substance and its foray into open systems and e-business is a pipe dream. Regardless of new management, they doubt IBM will make much ground in key strategic areas unless the company can dig itself out from under its past mistakes and begin to operate like a technology company of the 21st century.

In this year-end report, the editors who have followed IBM give their detailed perspective on the year that was and a bit of insight into the year to come.

The year of the Shark

The introduction of its Enterprise Storage Server, dubbed Shark, set the pace for IBM's push into the storage market. The move had a clear focus as well as an enemy -- EMC.

But setbacks in its product line gave EMC enough of a window to counter IBM, and a tug-of-war of words and products began over standards.

Undeterred, IBM pressed forward with a $400 million commitment to its storage division and later in the year appointed storage veteran Linda Sanford to head its storage division.

Another product delay surfaced, this time with the UltraStar drive, and that gave rival Seagate Technology an opening to pick up some of the slack.

News of a midyear $1 billion storage deal with its old foe Compaq surprised many. The duo announced they would make their respective storage hardware and software interoperable. The two companies also agreed to sell products from each other's storage portfolios.

Although things seemed bleak, a technological leap taken under Sanford's leadership was IBM's silver lining. Linear Tape Open (LTO) Ultrium products, representing the fruits of a three-year collaboration between IBM, Hewlett-Packard and Seagate, took aim at the midrange tape market dominated by Quantum Corp.'s DLTtape technology.

Forging on, IBM rolled out its own portfolio of managed storage services. In the same breath, Big Blue announced a storage-on-demand capability for its Shark storage servers and the Magstar Virtual Tape Server model B18. This allows users to upgrade storage capacity on a pay-as-you-go basis, paying for only what they use, something the industry had been waiting for.

Like the rest of its division, financially IBM disappointed. In its most recent earnings report IBM called storage revenues "mixed," saying that high-end disk drive revenues, led by Shark, were up strongly year over year while hard disk drive revenues declined. Overall, hardware revenues were $9.5 billion in the third quarter, an increase of 4% compared with the previous year. Revenues from IBM Global Services rose to $8.2 billion, with continued strength in the Asia/Pacific region, particularly in strategic outsourcing.

A new technology initiative, code-named Storage Tank, will be a universal storage system capable of sharing data across any storage hardware, platform or operating system. In other words, Storage Tank will act as the common language that enables storage devices to freely communicate, regardless of file format.

E-business is cornerstone of IBM

IBM continued the e-business push it started in 1997 with the addition of new products and services to its already robust line.

In June, IBM aimed straight at start-up software companies. Big Blue introduced Startup Initiative for Developers, a three-part program that included developerWorks Startup Resources, Startup Studios for Developers and TechTalk for Developers. These offered technical support and design and consulting assistance to foster the launch of e-businesses.

IBM also introduced several new servers targeted at the e-business market. In July, the company unleashed its Netfinity 6000R rack-mounted, four-way server. This was a space-saving server ideal for Web hosting or e-business applications, and it featured an integrated systems management processor, enabling administrators to remotely monitor, diagnose and reboot the server. Big Blue also offered the eServer xSeries 330 in November, a server measuring 1.75 inches high, which was reviewed on eWeek as providing the most computing power per square inch. A server priced below $1,000 was also introduced for the smaller, lesser-funded market.

To handle the overflow of e-business data, IBM Global Services began offering hosted storage and storage-management services. IBM set itself apart from other storage service providers by combining hosted storage and storage-management services with database, network and application-hosting services.

Finally, IBM gave telecommunications firms a boost in e-business in November. The company announced plans to team up with Nortel Networks and Lucent Technologies to offer products and services for telecom firms. Big Blue said the move was aimed at helping telecom service providers deliver applications over new-and-improved networks to assist in the rebuilding of their e-business infrastructure.

AS/400, S/390 new names, new leaders and Linux

Perhaps the biggest news for IBM on the server front was the pulling together of all server lines under the eServer umbrella. The AS/400 was dubbed the iSeries 400 with "i" purportedly for "integration." The S/390 became the zSeries 900 with "z" for "zero downtime." The RS/6000 became the pSeries 600 and the Netfinity Intel boxes became xSeries.

Observers see the eServer strategy as a way for IBM to unite its server lines under a single moniker. Much as people think of Sun Microsystems' machines as plain "Sun servers," Big Blue hopes customers see their line as eServers. Yet others, notably within the AS/400 community, saw the change as destroying the brand name that spoke volumes about reliability and security.

In addition to the renaming, IBM has brought Linux, the open-source Unix cousin, to all its server lines. Early in 2000, Linux was ported to the S/390. IBM and several independent software vendors agreed to not increase software prices based on added capacity for Linux. Traditionally, mainframe software prices are based on the total processing capacity.

Even IBM's own proprietary flavor of Unix was getting in on Linux. AIX 5 L features more Linux affinity and can accept recompiled Linux programs with virtually no changes. Essentially, IBM sees a Unix continuum with Linux for lower-end applications like appliance serving slowing up with AIX for more mission-critical applications.

Linux on the iSeries is expected in the beginning of 2001. Whether users will embrace the open-source operating system is yet to be seen. Running Linux as a logical partition would give users access to Linux applications such as the Apache Web server. Yet the capacity used for Linux on a iSeries 400 is expensive compared with running such applications on Intel-based machines.

The year 2000 also saw some personnel shake-ups at IBM. After three and a half years, Tom Jarosh is handing the reigns of the Mid-market Servers Division to Buell Duncan. Jarosh took over a newly created position as vice president of business development, server group.

And it seems CEO Lou Gerstner may have paved the way for his successor when Sam Palmisano was named president and chief operating officer over the summer. Though IBM officials are tight-lipped about the change, many observers see it as Palmisano being groomed for Gerstner's job. John M. Thompson was also promoted to vice chairman.

IBM had a sluggish first three quarters this year with $9.2 billion in sales, down over 6% from the same period last year. Hardware sales declined 4%, while services grew 2%. Revenues fell 1%, though the IT market is accepted to grow 10% this year.

For the third quarter, IBM's sales met analysts' estimates -- but barely. Big Blue racked up $21.8 billion in sales, earning $2 billion -- or $1.08 per share. Sales were up 3% over the same quarter last year. Analysts predict between $21 billion and $23 billion for the quarter.

Software sales fell 3% to $2.9 billion in the quarter, while hardware sales increased 4% to $9.5 billion. Parts problems plagued the AS/400, which contributed to flat sales for them in that quarter. Sales of the S/390 declined in that quarter as customers waited for the release of the zSeries 900, the renamed high-end mainframe. Observers are looking forward to fourth-quarter earnings, since IBM said it was having trouble keeping up with the demand for the systems.

Zollar's wild ride

The year 2000 for Lotus has been a roller coaster ride of speculation and trepidation that featured executives departing, product launch delays and closer ties to parent IBM.

Coming off slow 1999 sales of Notes/Domino R5 due to year 2000 concerns, the Cambridge, Mass., company took another blow in early January with the resignation of CEO Jeffrey Papows, which preceded the departure of four vice presidents before year's end.

However, during his unofficial coronation at Lotusphere a few weeks later, new CEO Al Zollar, a 23-year IBM veteran, put down speculation about Lotus' demise by reaffirming that the company would continue to maintain its own identity by focusing on client software.

Lotusphere also marked the unveiling of a Raven beta, an enterprise knowledge management platform. Considered promising, some questioned whether IT shops would want to redesign the way critical business information was shared and organized.

Originally earmarked for a midyear release, Lotus announced Raven's K-Station portal building component would be released no sooner than November, and Raven's real jewel, the Discovery Engine, would not be made available until early 2001.

One bright spot for Lotus was the September release of its ASP Solution Pack, which was designed to help ASPs offer hosted Lotus applications. It integrated Domino and Sametime messaging servers, and IBM's WebSphere Application Server and DB2 database.

In October Lotus released a beta version of its new Web-enabled version of Notes. Code-named Shimmer and later dubbed iNotes, Lotus plans to release the full version early next year.

The battle with Oracle continues

IBM has had an up-and-down year with its DB2 Universal Database. Earlier in the year, Version 7.1 of the database blew away its competition in benchmark testing by the Transaction Processing Performance Council. The second-place TCP score by the rival Oracle 8i, Version 8.1.6, wasn't even close.

But Oracle CEO Larry Ellison got in some licks against DB2 later in the year when he mocked IBM for giving multiple vendors the ability to run their software on top of DB2. Ellison said that decision was "horrible" because system integrators would then need to stitch the systems together with no way to predict performance under the myriad configurations. That led the flamboyant Ellison to make his oft-quoted guarantee that Oracle could make Web sites running IBM's DB2 or Microsoft's SQL Server run three times faster or Oracle would pay the site owners $1 million.

So far, no one has cashed in on the offer on a DB2-powered site �- or SQL for that matter �- but it appeared that Oracle was setting the agenda.

As the year draws to a close, IBM is striking back in the database war. The company recently released a series of DB2 Universal Database products based on the Linux operating system that serves both the mainframe database market and the growing open-source database segment.

Christine M. Campbell, John Hogan, Edward Hurley, Kevin Komiega and Eric Parizo contributed to this article.

For more information:

IBM storage division scrambles in challenging market

IBM to ship enhanced mainframe, storage systems

IBM Storage Division Web site

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