Amdahl gives up on mainframe business

New focus on high-end Unix servers will leave field to IBM, analysts say

Amdahl Corp. last week confirmed that it plans to exit the mainframe market, a move that shocked some users and led analysts to warn that IBM will have more freedom to avoid reducing prices on its big-iron S/390 systems, now that its two plug-compatible rivals are largely exiting the scene.

Seven months after Hitachi Data Systems Corp. in Santa Clara, Calif., said it was scaling back its mainframe efforts, Amdahl announced that it's doing the same thing because the investment required to stay competitive with IBM's new 64-bit mainframes isn't worth the projected return.

As a result, Amdahl, a subsidiary of Tokyo-based Fujitsu Ltd., won't be extending its current line of 31-bit IBM S/390-compatible mainframes, said Carol Stone, a vice president at Amdahl.

The Sunnyvale, Calif., company will cease manufacturing these systems in March 2002, though it will continue to support its installed base through March 2007, Stone said.

Amdahl plans to focus all hardware investments on Fujitsu-branded Unix systems using Sun Microsystems Inc.'s UltraSPARC-based technologies, Stone said

"IBM's [64-bit] architecture is very proprietary and requires a significant investment [to emulate]" Stone said. With mainframe sales projected to dwindle in the next few years and demand for 64-bit mainframes likely to remain low for some time, the investment wasn't worth it, she said.

"We decided the smartest business decision for us would be to direct our investments to the open-systems market instead," Stone said.

"I'm stunned," said Dan Kaberon, a parallel sysplex manager at Hewitt Associates Inc., a major mainframe user in Lincolnshire, Ill.

"Amdahl has been a creative force that has propelled so much of the industry over the years . . . it's sad to see them go," Kaberon said. Innovations such as Amdahl's partitioning technology - for running multiple operating systems and applications in separate partitions within a single box - not only put pressure on IBM but were also widely copied by other vendors, he said. "There's no second-best alternative to competition; it makes everyone better, faster and cheaper," he added.

Amdahl's exit is an unfortunate - but not unexpected - consequence of slowing mainframe demand and competitive pressures from powerful new Unix servers, said David Floyer, an analyst at ITCentrix Inc., a consultancy in Mountain View, Calif.

For instance, the net growth of installed mainframe capacity has slowed - from more than 33% two years ago to just over 18% last year - while Unix server growth rate has been double that, said analyst Carl Greiner at Meta Group Inc. in Stamford, Conn. "Amdahl was looking at a slowing market and a huge investment to stay competitive," he said.

But Amdahl's decision is bad news for users in a market already depleted by the sudden exit of Hitachi, Floyer said.

Most of IBM's long-term and immediate competition comes from Unix vendors such as Sun, but both Hitachi and Amdahl had enough of a market presence to exert some pressure of their own, analysts said.

Last year, the two firms together accounted for 21% market share, while IBM held 79%, according to Meta Group. With Hitachi's exit, IBM will have an 86% share this year, Meta Group estimated. One result: "Don't expect to see the 30% to 35% price/performance gains that we have been seeing annually," Greiner said.

The fact that mainframe prices have remained fairly steady at $2,500 per MIPS this year - instead of the projected $1,500 by year's end - may be a sign that IBM is already being less aggressive about dropping its prices, Greiner said.

Copyright © 2000 IDG Communications, Inc.

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