Amdahl planning to exit mainframe business

And then there was one.

Amdahl Corp. today 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 hold the line on prices for its big-iron S/390 systems, now that its two plug-compatible rivals are largely exiting the scene.

The move by Sunnyvale, Calif.-based Amdahl comes seven months after Santa Clara, Calif.-based Hitachi Data Systems Corp. said it was scaling scaling back its mainframe efforts and halting sales to new customers (see story). Amdahl said it's doing the same thing because the investment required to stay competitive with the new 64-bit zSeries 900 mainframes that IBM announced earlier this month wasn't worth the projected returns.

As a result, the subsidiary of Tokyo-based Fujitsu Ltd. doesn't plan to extend its current line of 31-bit S/390-compatible systems, said Amdahl vice president Carol Stone. Amdahl will cease making those machines in March 2002, she said, although the company will continue to support its installed base of users for another five years after stopping production.

"IBM's [64-bit] architecture is very proprietary and requires a significant investment" to emulate, Stone said. With mainframe sales projected to dwindle during the next few years, and demand for 64-bit S/390 machines likely to remain low for the near future, the investment didn't look appealing to Amdahl from a business perspective, she added.

Instead, Amdahl plans to focus all of its hardware investments on Fujitsu-branded Unix systems based on Sun Microsystems Inc.'s UltraSPARC microprocessors. "We decided the smartest business decision for us would be to direct our investments to the open systems market," Stone said.

Dan Kaberon, parallel sysplex manager at Hewitt Associates Inc., a major mainframe user in Lincolnshire, Ill., said he was "stunned" by the decision. "Amdahl has been a creative force that has propelled so much of the [mainframe] industry over the years," he said. "It's sad to see them go."

Innovations such as Amdahl's partitioning technology -- for running multiple operating systems and applications in separate partitions within a single system -- not only put pressure on IBM but also were widely copied by other vendors, Kaberon noted. "There's no second-best alternative to competition," he said. "It makes everyone better, faster and cheaper."

Amdahl's planned 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 consultancy IT Centrix Inc. in Mountain View, Calif. He added that the decision is bad news for users in a mainframe market already depleted by the sudden exit of Hitachi.

Carl Greiner, an analyst at Meta Group Inc. in Stamford, Conn., said the net growth of installed mainframe capacity has dropped from more than 33% two years ago to just over 18% last year. But with IBM's competition getting out of the market, Greiner had this advice for users: "Don't expect to see the 30%-to-35% price/performance gains that we've been seeing annually" in recent years.

Greiner said the fact that mainframe prices have remained fairly steady at about $2,500 per MIPS this year -- far higher than the $1,500-per-MIPS level that analysts had forecast by year's end -- may be a sign that IBM already is being less aggressive on pricing.

Although most of the immediate and long-term competition for the S/390 line comes from Sun and other vendors of high-end Unix servers, analysts said Amdahl and Hitachi had enough market presence to exert some pressure on IBM.

Meta Group estimated that the two plug-compatible vendors had a combined 21% share of the S/390 market last year. With the earlier announcement by Hitachi, though, Greiner said he expects IBM to increase its market share to 86% this year.

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