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IBM's storage revenues are declining, the cloud is taking over

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July 21, 2014

In the last few years, IBM's storage revenues have dropped, with only Flash Systems showing some growth. In fact, it appears that Flash Systems is the only area where there is some serious action happening.

Within the Systems and Technology segment of IBM's second quarter results for this year, revenues from System Storage decreased 12 percent, while at the same time, flash storage grew more than 100 percent.

Overall, this is the eleventh quarter in a row in which the Systems and Technology business' revenues have declined.

So, removing the storage revenues from IBM's current results and plotting them by quarter and year we get a clearer idea of how each quarter is doing in a succession of years.

A few years ago, IBM went on an acquisition spree to improve its storage product range. That seems unlikely to be a course of action IBM will take at present. We would suggest that the biggest strategic threat to IBM in storage, servers, software and services is the public cloud.

If enterprise customers are not buying IBM hardware to run IBM middleware and using IBM Global Services to produce the systems that link this hardware and software to business processes, then IBM revenues, net income and EPS will all fall.

Could it be the case that the hybrid cloud is only a temporary stepping stone, in a timescale of decades, to public cloud computing dominance? Perhaps the only sure way to compete with the public cloud is to have your own cloud offering?

That's what Big Blue is currently doing with its SoftLayer initiative. Stifel Nicolaus' Aaron Rakers noted-- "IBM expects to continue rolling out its SoftLayer data centers in the third quarter and 4th quarter of this year.

IBM announced its intention to invest $1.2 billion to expand its cloud data centers, planning to open 15 new data centers worldwide in fact, adding to its existing 13 data centers acquired via SoftLayer and twelve from IBM.

In other IT news

Intel said this morning that is has tweaked its Xeon firmware and sold it off to Oracle, in an effort to streamline things a bit. The two companies announced late yesterday that they had partnered to work on a Xeon chip whose cores can be turned on or off and where the clock speed can be easily changed and tailored by Oracle's in-house software.

To be sure, Intel's new Xeon E7-8895 v2 SKU was carefully 'adjusted' by Intel to allow Oracle's code to choose how many of the chip's fifteen cores to use at any given time, and at what clock speed, said Intel spokesperson Pat Buddenbaum.

Although these three new features-– clock rate manipulation with Turbo Boost, selective power C-states, and the ability to dial-up and dial-down cores have been available in prior Intel chips, this marks the first time they've all been available in a single Xeon CPU, we're told.

This allows Oracle to run systems at full processing capacity when a heavy workload arrives, and spin down the CPUs in quiet periods, all of which should save some energy.

Additionally, the fewer cores used, the higher the clock frequency can go in Turboboost mode, which is useful for certain kinds of processor-intensive applications.

The 22nm-process E7-8895 v2 has fifteen cores running at a typical clock speed of 2.8 GHz, though it can use "Max Turbo" to scale up to 3.6 Ghz.

It has 37.5 MB of data cache. Its maximum thermal design power (TDP) is 155 Watts, which in technical terms is a very hot chip when compared to other similar designs.

The CPUs must be able to reliably work over a range of several clock frequencies, grouped into grades called "bins". One bin represents a 100 MHz increment in clock frequency for the E7-8895 v2, Intel told us.

"Let's just say that this is a fifteen core part at the outset, running under mostly favorable conditions that allow for Turboboost. It can theoretically run at one bin or two bins to three bins above rated frequency," said Intel.

"Depending on all the many conditions that enable that, you can hit any one of those points. Three bins is the maximum at the 15-core mark, but as you go lower, say to a six-core mode, then the maximum frequency within that particular situation is 3.4 GHz. If for some reason only one core is being used, then in that particular scenario you can go up to 3.6 Ghz," said Intel.

The chip giant spent about a year working with Oracle to help the company tweak its software and schedulers to automatically scale core usage up and down, and make better use of its power management "C-state" technology that Intel made available through firmware tweaks, Intel said.

"It's more through the unlocking of features in the chip, but also through our manufacturing process there will be a more stringent thermal profile required such that the chip supports all of these different modes," Intel added.

This marks a continuation of one of Intel's major new strategies-- customizing its high-margin server chips for specific customers, like eBay or Twitter.

Another aspect of this is its announcement of sitting FPGAs directly on top of Xeons for off-CPU acceleration.

Previously, Intel's customizations have involved different power management methods and selecting some chips for particularly high sustained clock frequencies, but Buddenbaum believes this is the first time Intel has sold a chip with dynamic core-scaling targeted at servers.

Though Intel makes much of the customization itself, it hasn't done anything from a hardware perspective besides select for the best Xeons coming off its production line.

The magic is all in the firmware unlocking some chip features. The new chips will sit inside Oracle's just-announced Exadata Database Machines X4-8, which have been built for Oracle's "in-memory" database refresh.

This new server design is "specifically optimized for a new generation of workloads: database as a service (DBaaS) and database in-memory. With up to 12 terabytes of DRAM memory, the Exadata Database Machine X4-8 can consolidate hundreds of databases and can run massive databases entirely in-memory," Oracle claims.

The new server can feature 12 TB of memory per 42U rack, 672 TB of disk storage and up to 44 TB of PCIe-linked flash as well.

"This new customized version of the Intel Xeon processor E7 v2, developed in collaboration with Oracle, helps maximize the power of the Exadata Database Machine X4-8 by elastically accelerating peak performance of database operations, while also reducing the data footprint," said general manager of Intel's Data Center Group, Diane Bryant.

In other IT news

Big Blue has been following the amazing success of Apple's very popular iPhones and iPads with great interest in the past two years, and now the IT behemoth has decided that it wants part of the action.

IBM and Apple late yesterday announced a new partnership to maximize each company's strategies. Starting sometime this fall, Apple is delivering devices exclusively to IBM, which the IT giant will then integrate with industry-specific apps for business and enterprise customers.

The idea is to provide specialized Apple devices to companies in banking, health care, insurance, retail, travel and transportation, to name just a few.

Big Blue said it will carefully listen to the specific needs of its huge list of business clients spread in over 250 different industries.

IBM will then craft tailored software that addresses those distinct needs. "For the first time ever, we're placing IBM's renowned big data analytics services at Apple iOS users' fingertips, which opens up a huge market opportunity for Apple," Apple CEO Tim Cook said in a statement, calling the new partnership "a radical step in the immediate future of both companies."

IBM CEO Ginni Rometty promised a "transformation to the way people work, industries operate and companies perform over the long haul."

No specific date has been set yet, but beginning sometime this fall, the iPhones and iPads will only be available through IBM representatives to meet their business clients' distinct needs.

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They will include a private app catalog, data security services and a lot more, Apple and IBM added.

An IBM spokeswoman said it was too early to give some examples of what kinds of business apps would be available.

The two companies also said Apple devices would use IBM's vast and powerful cloud services, which offer data storage, various enterprise services and flexible work-sharing capabilities.

The new alliance makes sense on several levels. First, industry specific apps will lock down Apple's iOS market share in the enterprise segment.

Apple's iOS market share vs Google's Android share in the enterprise segment is the inverse of the consumer space. IBM gets to package iOS apps, embed its analytics tools, and then use its vast IT services and sales channel to offer those business apps to corporations.

Then, Apple gets a key enterprise partner without having to exclusively build and market apps to corporations. And of course, IBM also gets 'Apple's cool factor' that is legendary with all its users.

Consumerization will only go so far for Apple's enterprise ambitions, so this new deal is a win-win for both companies.

Forrester analyst Frank Gillett welcomed the new alliance-- "The Apple-IBM partnership is a landmark agreement, in our view. Given IBM's strong market strength and coverage in the business apps segment, this alliance gives Apple enterprise capabilities and credibility in just one stroke, and gives IBM a premium advantage in the race for mobile enterprise leadership. Look for Google and leading enterprise suppliers to seek similar partnerships that offer a credible alternative."

But of course, Apple's and Big Blue's win will cause other companies some pain, beginning with Google's Android. That operating system has some partners in the enterprise segment, but it's also an OS that has had more than its share of security issues lately.

Source: IBM.

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