IBM mainframe woes continue with big Q4 drop

Big Blue hopes its next generation of mainframes will sell better

IBM's mainframe division finished a disappointing 2009 with a 27% fourth quarter revenue decline, but Big Blue is hoping the next generation of its mainframe computer will boost sales in 2010.

System z mainframe revenue dropped 27% in the fourth quarter compared to the same period in the prior year. The Q4 results followed declines of 26% in the third quarter, 39% in the second quarter and 19% in the first quarter.

IBM doesn't provide revenue dollar amounts for individual server product lines, but the mainframe suffered the biggest decline within the company's systems and technology group, which reported fourth quarter revenue of $US5.2 billion, 4% lower than the previous year. The systems and technology group also includes storage, x86 servers and Power servers.

The System z revenue decline "is consistent with what you would expect at this point in the product cycle," IBM CFO Mark Loughridge said when the company released its fourth quarter earnings this week.

IBM unveiled the System z10 mainframe almost two years ago, leading to a 12.5% increase in revenue in 2008. The initial boost in sales caused by a mainframe upgrade is typically followed by a decline, but the revenue drops in 2009 were quite a bit larger than the amount gained in 2008.

"Later this year we are releasing the next generation System z," Loughridge said.

In the meantime IBM has tried to shore up the mainframe business with special pricing, including on Linux bundles. But overall shipments as measured in MIPS (millions of instructions per second) have still declined for three consecutive quarters, including a 19% drop in the fourth quarter.

Gartner analyst Mike Chuba has said that if sales continue to suffer IBM may be forced to speed up the release of its newest mainframe.

Despite the disappointing mainframe revenue, IBM reported a 10% jump in profit companywide in the fourth quarter.

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