Cloud Computing: IBM mainframe, tech’s ‘dinosaur’, turns 50

Grazed from MarketWatch. Author: PR Announcement.

The IBM mainframe, the drab-looking refrigerator-size machine that was once the symbol of computer technology, turned 50 this week. It’s been portrayed as a technology dinosaur, out of place in an era where computing is about being small, fast and mobile. But in half a century, the mainframe has remained one of IBM’s IBM -0.25% most successful flagship products.

In fact, a decade ago when the mainframe celebrated its 40th year, Big Blue even embraced the ‘dinosaur’ label, unveiling the latest version with a catchy, defiant code name: ‘T-Rex.’ But that was when IBM was viewed as the tech giant on a comeback trail, bouncing back from setbacks in its competition with newer, more nimble rivals, as it recast itself as an IT services and software powerhouse…

Today, IBM is again seen as technology’s struggling giant.

“We view growth as challenged for IBM, given its size and limited exposure to growth segments,” Deutsche Bank analysts told clients in a Thursday note initiating coverage with a hold rating. “Given the lack of growth, we expect shares to be range bound and expect the stock to trade modestly below historical multiples.”

ISI Group’s Brian Marshall, in a January note, quipped, “What happened to my Boy Blue?”

“We believe IBM has failed to capture a leadership position in some of the most currently relevant areas of innovation such as public cloud computing, software-defined networking/storage and software-as-a-service,” he wrote.

In fact, the way IBM marked the mainframe’s golden anniversary also underscored the challenges the company faces.

This week, the company unveiled new applications for System z, as the company’s mainframe product is called, geared to mobile, cloud and big data platforms.

“As the cloud market evolves to service an ever-larger share and type of IT workloads, clients are increasingly turning to the mainframe to provide the basis for their cloud deployments,” IBM said in a release.

In fact, traditional tech giants, including IBM, have been struggling to adapt to new trends, including cloud computing, which has allowed businesses access computing power through a network, avoiding the hefty expense of setting up and maintaining their own data centers.

Businesses have also been able to access applications by turning to software players, such as Salesforce.com CRM -3.08% and Workday WDAY +0.40% , that offer software applications as a Web-based service usually on a subscription basis, a model known as software-as-a-service.

Meanwhile, Internet giants, led by Google GOOG +0.12% , Facebook FB +0.09% and Amazon AMZN -1.70% have been using custom servers that handle high-transaction, heavy workload data centers as well as Web-scale applications, such as publishing web pages and storing customer data, including social network photos and other posts.

To be sure, IBM remains dominant in the high-end segment of the server market, in which the mainframe system is still widely used. In fact, IBM’s share of that market has risen from 61% in 2002 to 82% in 2012, according to IDC.

But it’s a shrinking market. Total revenue for high-end enterprise servers totaled $5.4 billion in 2012, down from $7 billion in 2002, according to IDC.

The mainframe remains popular for IBM customers, such as financial institutions, governments and companies in the health care sector, with heightened concerns about security and making sure their networks never go down.

“There are a lot of cloud-based options for disaster recovery, but most of that still doesn’t address true fault tolerance, which is a major benefit available through IBM’s System z,” IDC analyst Kuba Stolarski told MarketWatch.

And that’s IBM’s bet for keeping the mainframe relevant at a time when much of the growth in technology is based on lower-cost, though less secure systems.

“If a Google server punks, it has been mirrored by several others, and a fresh piece of hardware can be spun up to look just like the one that died,” analyst Roger Kay of Endpoint Technologies Associates told MarketWatch. “But it takes a bit of time. …The system works well, if you’re not too impatient and the info isn’t mission critical.”

On the other hand, he added, “IBM’s redundancy in the mainframe is at the system level, so the actual machine doesn’t go down it’s also designed for heavy computing and loads without a degradation of performance.”

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