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Due to the COVID-19 pandemic, enterprises around the globe are struggling to rebalance their priorities and grow revenue. Buying patterns are changing; consumers have had to tighten their belts; and unemployment has risen drastically. Not exactly a friendly climate for driving computer sales, yet IBM’s System Z revenues are growing steeply. These machines are high end and certainly not inexpensive. Why is this happening?
Background: IBM announced its IBM z15, the latest iteration of its mainframe line, almost a year ago, on Sept. 12, 2019. Since that announcement, IBM has reported that it has “shipped the highest MIPS (millions of instructions per second – a measure of raw compute power being used on Z mainframes) in history in Q4 2019, driven by growth in new workloads.”
In Q1 2020, IBM reported, “The Z line of mainframe computers within its Systems division was up 59% as sales of the z15 mainframe continued.” IBM further noted that it had “strong working capital performance, driven by stable collections and good financing attach rates primarily on IBM Z.” During Q2, even with the rapid global expansion of the pandemic that took place in March and April, IBM Z revenue was up 68%.
Why System Z Is in Such Demand
There are three related answers to the Z revenue growth question:
- System Z revenue traditionally increases significantly during the first year after the release of a new model – usually driven by demand for more compute power as well as attractive pricing (especially for upgrades). This demand is driven primarily by large enterprises that require additional capacity and still depend on System Z for highly secure processing (particularly transaction processing), including banks, retailers and insurers. To date, 75% of the world’s top 20 banks have acquired IBM z15 systems, and 23 of the top 25 retailers use System Z. Pandemic or not, enterprises still need to manage their finances; businesses still need to process transactions; trade continues. Also noteworthy, the pandemic has caused a spike in contactless/cashless payments via credit cards, debit cards, etc. – serving to increase the number of transactions that need to be processed – a fact that may also be contributing to increased sales of System Z.
- The second reason regards new workloads. In a recent research analyst briefing, IBM attributed some of the recent System Z revenue growth to the capture of new workloads and “movements to IBM z15.” Where is the growth in new workloads coming from? It looks like IBM’s acquisition of Red Hat is paying dividends for System Z – with solid growth of Linux workloads on IBM’s Z and LinuxONE platforms. Between Q2 2019 and Q2 2020, IBM has reported to have seen a 55% increase in Linux MIPS – with 92 of IBM’s top 100 Z clients running Linux workloads on the platform. These workloads include server consolidation (because Z can consolidate more servers more effectively than x86-based platforms), as well as new cloud workloads (assisted by last year’s IBM pricing action [see https://bit.ly/2DnjYlF]) that level the playing field for cloud costs compared with x86 platforms – while also offering stronger security and resiliency than x86 can provide.
- The third reason relates to new features/product offerings. IBM System Z development is focused on making System Z a “cloud-native” platform (meaning it looks and feels just like any other platform in an enterprise cloud); on security extensions (such as the new “encryption everywhere” mainframe facilities); on enhanced cyber resiliency; and on making IBM System Z more flexible (for instance, during the COVID-19 pandemic, IBM is reporting that mainframe clients are taking advantage of System Z’s cloud elasticity – turning on capacity as needed to tackle fluctuating workload demand). According to IBM, “Z clients temporarily activated a total of nearly 4x more general-purpose capacity via On/Off Capacity on Demand in 2Q 2020 compared to 2Q 2019.
In short, pent-up needs for more capacity, the capture of new workloads, and the addition of new products and features are what are driving strong revenue increases within the IBM System Z product line and new z15 systems in particular.
Behind the Scenes: A Closer Look at IBM Z’s Developmental Focus
What is IBM doing to drive future growth on the Z platform? The answer lies in the company’s focus on cloud growth, security, resilience and flexibility. The value proposition that IBM Z is delivering to the market is this: “We offer the cloud facilities you want – with the privacy and security that you need.” Accordingly, System Z development is focused on:
- cloud-native development;
- encryption everywhere;
- cyber resiliency; and
- design for flexible computing.
The cloud-native focus is particularly interesting because it highlights IBM’s desire to make System Z an equal player in the enterprise cloud marketplace. For years, enterprise IT executives have focused on deploying cloud applications on x86-based servers – or have outsourced some of their workloads to cloud providers running x86-based servers on the back end. System Z has been treated separately – as a monolithic transaction processor and data source – with new x86 cloud workloads tapping mainframes for data when needed.
In other words, until recently, System Z has not been treated as the host for new cloud applications but was instead being relegated to its more traditional roles in transaction processing and business analytics. By making System Z a “cloud-native environment” (by using Kubernetes, OpenShift, Ansible [go here] and other tools to make application development look and feel exactly the same as developing on an x86-based platform), IBM hopes to encourage developers to adopt System Z – making mainframes transparent members of enterprise cloud environments.
Noteworthy regarding IBM’s progress on its cloud-native initiative is that as of 2Q 2020, 65% of z15 and LinuxONE III clients have started their journey to hybrid cloud environments (mixing these systems with their x86-based clouds). Further, 2,000 downloads of the z/OS core collection for Ansible have taken place since March 17, 2020, indicating strong interest in using Ansible tools on the Z platform. These are good indicators that IBM’s cloud-native initiative is gaining traction.
The second focal point (encryption everywhere) should have taken the industry by storm given constant cyber-attacks and other security risks – but encryption everywhere comes with a learning curve. Enterprises have had to figure out which applications need encryption support – and have had to classify their data such that the most important data is secured – and this has taken some time. Encryption everywhere may have been a bit slow to take off, but momentum is growing now that enterprises have learned how to deploy it – and, accordingly, represents a future driving force for System Z sales.
New Hyper Protect Virtual Servers Now Available
To further encourage customers to adopt its “encryption everywhere” technologies (pervasive encryption along with Data Privacy Passports), IBM has just announced new IBM Hyper Protect Virtual Servers that secure critical Linux applications; the company has also added homomorphic encryption to Linux on IBM Z and has further announced Extending Cryptographic Technology that allows up to 5,100 virtual HSMs (hardware security modules) to be deployed on a single z15 platform.
The third focal point (cyber resiliency) focuses on System Z uptime – which has long been a huge differentiator in the industry for IBM. System z15 delivered System Recovery Boost technology – and IBM has now extended that technology to support recovery actions across its large Sysplex deployments (using newly announced IBM System Recovery Boost: Beyond the IPL facilities). Using System Recovery Boost facilities, IBM is reporting 2x faster return to pre-shutdown service-level agreements; 2x faster processing of transaction backlogs; 2.5x faster processing of batch backlogs; and 4X faster GDPS (Geographically Dispersed Parallel Sysplex) automated startup, shutdown and site switches.
The fourth focal point (design for flexible computing) is focused on giving IBM Z customers the flexibility to add additional capacity on demand – and on improving performance. Accordingly, the z15 has been tightly integrated with underlying storage products to deliver a complete integrated, flexible cloud solution that can deliver capacity as needed. Further, with new on-chip sort acceleration facilities, IBM z15 can help reduce CPU usage and elapsed time for sorting various workloads (such as batch processing).
New announcements in flexible computing include IBM z15 T02 – 16U Reserved Space for DS8910F – allowing for customized z15/storage solutions within the same footprint; and optimized elapsed time for sorting workloads using on-chip accelerated sort on z15. Also noteworthy is that IBM z15 clients have twice the adoption rate of z/OS compression facilities compared to the adoption rates of previous z14 or z13 clients – an indicator that IBM’s Z compression message is resonating more fully amongst its Z installed base.
Summary Observations
In a recent earnings announcement (Q2, 2020), Jim Kavanaugh, IBM’s senior vice president and chief financial officer, stated, “As the pandemic intensified through the end of March and into the second quarter, we experienced lower client-based business volumes, reflecting challenges across industries. While performance in some of these industries, like financial services, was consistent quarter-to-quarter, other industries had a more significant decline. We saw this especially in retail, automotive, consumer goods, and travel and transportation.”
IBM recognizes that the current environment provides both near-term challenges and longer-term opportunities. In Q2 guidance, the company indicated that even with a strong second half pipeline, results will be influenced by rate and pace of economic recovery.
Clearly, IBM is expecting a cross-industry slowdown in business. But during this period, IBM Z has been a bright spot, delivering more capacity to IBM customers, attracting new workloads and allowing IBM mainframe-using organizations the flexibility they need to adapt to changing industry conditions.
Joe Clabby is principal analyst with Clabby Analytics and an occasional contributor to eWEEK. Copyright © 2020