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Often under-sung, big iron like this z14 is adding to both the top and bottom lines at IBM

Not Just the New Businesses are Contributing to IBM’s Turnaround

When IBM reported its 4Q17 earnings Jan. 18, the headlines screamed that revenue had stopped shrinking after 22 straight quarters. The company had been through a miserable period during which it sloughed off chunk after chunk of sales dollars associated with older, lower-margin businesses — while much of its available capital was being devoted to long-term investments in new areas with payoffs that were uncertain both in timing and magnitude. The joy attendant upon the company’s new-initiative-driven arrival in the promised land of the Growing Top Line, however, obscured the fact that one of the traditional units, IBM Z mainframes, also made a solid contribution to renewed growth.

Looking back, the company eschewed the highly competitive x86 server market, where it had a respectable position, but no ownership over the key intellectual property — and therefore profits. It was buying chips from Intel, a great rival, which also seemed like a bad idea. So, it sold the whole kit and caboodle to Lenovo in 2014.

In another shrinking maneuver, IBM had been a major integrated device manufacturer, one of a mere handful (the others being Intel and Samsung). IBM’s Power chips had been the backbone of Apple’s Macintoshes as well as the company’s own house brand of Power Systems. But Apple went over to Intel, and the volume of Power chips was no longer able to sustain the vast investment required to keep semiconductor factories running. So, IBM did what IBM does. It kept the high-value parts of the business — process node technology development and semiconductor design — and sold the factories to Globalfoundries in 2017.

Meanwhile, investment was going by the bucketload into new strategic initiatives like cloud computing, big data analytics, blockchain, and artificial intelligence as well as technologies — like quantum computing and brain-mimicking computing — that might not yield commercial results for years. The company made a huge bet on Watson, a complex big-data-analytics supercomputing platform that uses artificial intelligence and natural language understanding to deliver answers to questions in complex domains. One of those domains was weather, and IBM bought in 2016 as part of the overall Watson effort. Today, this group forms the core of IBM’s Cognitive Computing efforts.

But all the while, the IBM Z mainframes were plugging along, doing what they do best, which is running the primary computing loads of the world’s largest companies. Firms like Visa — which processes up to 56,000 credit-card transactions per second for 2 billion consumers and 26 million merchants around the world — rely on IBM Z, which did not fail the company during peak holiday operations over a 20-year stretch. Today, the IBM Z is capable of processing 12 billion transactions per day. But while the fancy new initiatives have been getting all the sunlight, the old industrial IBM Z has mostly been hidden in the shade.

IBM has been reinventing the mainframe for decades. In its latest incarnation, IBM Z is taking on one of today’s biggest issues: protecting precious corporate data from attacks through advanced encryption for important new workloads like blockchain, machine learning, and payments.

In the latest quarter, mainframe revenue increased by 71% year on year, and the company added 14 new mainframe clients, including 10 “instant-payment” customers. These wins include the Beijing Institute of Technology, which is using an IBM Z mainframe to run blockchain services, Vietnam-based Techombank, which chose an IBM Z for its stellar security features, and Dutch firm Emerging Business Partners, Inc. (EBPI), which is using its IBM Z for instant payment processing services.

New clients such as these have been drawn to the new IBM Z mainframe for its best-in-class security, great scalability, and readiness to take on the important emerging workloads of the next computing era. The IBM mainframe may be a veteran, but through constant evolution, it is well positioned to remain the technology workhorse of the 21st century and can be expected to contribute solidly to revenue and profit growth in the quarters and years to come.

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