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IBM mainframe revenues finally slip

It couldn't last forever. After five consecutive quarters of solid growth, IBM's mainframe revenue has faltered. But analysts say it's too early to tell whether the dip signals a major downhill slide.

Following five consecutive quarters of growth, IBM announced zSeries mainframe product revenue decreased compared...

with the prior-year quarter, which was particularly strong.

It is too hard to say whether this dip means mainframe growth is over.
Gordon Haff
Senior AnalystIlluminata

With double-digit growth for the past two years, Tuesday's announcement of a drop seemed rather bleak. Still, most observers knew the ride couldn't last forever.

According to analysts, this slip needs to be considered in the context of the surprising growth that the zSeries has experienced recently. "The mainframe is a legacy platform at some level," said senior analyst Gordon Haff for Illuminata Inc., in Nashua, N.H. "Rapid growth is not sustainable in the long term."

In 2003, mainframe revenues were up 33% from the previous year. These gains were attributed to the release of the T-Rex z990, according to analysts. Support for Linux, J2EE and other modern platforms also bolstered the system, making the mainframe a more versatile machine.

Throughout 2004, mainframes posted impressive growth, earning a 34% increase in the first quarter and 12% gains for the second and third quarters, consecutively. This prompted analysts to rethink projections on the decline of the mainframe, but many felt the growth would not be sustained.

Read more about the zSeries revenue ride

That's right -- mainframe sees spike in sales

Mainframe bright spot in IBM's earnings report -- again

zSeries defies industry, maintains revenue growth

Momentum from IBM's significant refresh of the zSeries carried over into 2004, according to Charles King, a principal analyst for Pund-IT Research, in Hayward, Calif. "Getting toward the two-year mark of the introduction of new product sets, most people positioned to jump into mainframes have already done so. Now people are sitting back and waiting for what's next," King said.

King attributes the fourth quarter dip to customary consumer hesitancy preceding the presidential election. "From a market standpoint, the candidates were similar. But there is a tendency to hold your breath in the months leading up to an election."

Despite the slow quarter, mainframe growth is up 15% annually, which seems incredible to some observers. "IBM competitors had hoped that mainframes were on their way out -- Sun and Hewlett-Packard included -- and a significant increase in mainframe sales disputes that," King said.

"It is too hard to say whether this dip means mainframe growth is over," Haff said. "We are two to three quarters away from being able to draw a trend."

In spite of the zSeries decline, IBM announced overall fourth quarter earnings topped $3 billion. While Big Blue's gains were partially boosted by a weak U.S. dollar, company officials touted this as their strongest quarter ever.

Dig Deeper on IBM system z and mainframe systems

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