IBM Moves to Refresh Mainframe Line

 When you want to crunch big numbers, a mainframe will do. Aivars Lode avantce

IBM Moves to Refresh Mainframe Line

Tech Giant Unveils z13 Computer, Which Cost $1 Billion Over Five Years to Develop

By Don Clark 

Updated Jan. 13, 2015 4:47 p.m. ET 

International Business Machines Corp. has given up some major hardware businesses, but it spares no expense on its trademark mainframe computers. Now Big Blue is back with a major upgrade. 

The company on Tuesday is announcing what it calls the z13, a machine about the size of an extra-large refrigerator that IBM calls the most sophisticated computer ever built. The company spent $1 billion over five years on the development effort, it said, adding features based on input from more than 60 customers.

Mainframes, the descendants of products IBM has been selling since the 1950s, are designed to manage large volumes of transactions with extremely high reliability. Typical users include banks, stock exchanges, airline reservation systems, retailers and other companies that want to avoid service interruptions. The machines and their software use specialized techniques to make sure transactions are completed, such as a debit from one bank account creating a credit in another. 

IBM says the z13 can carry out 2.5 billion such transactions a day—delivering a 30% performance increase in carrying out some computing jobs—and includes many new capabilities. 

Sales of mainframes have been far outdistanced in the past two decades by the popularity of servers that use chip technology known as x86 that evolved from personal computers. But they remain an important part of IBM Chief Executive Virginia Rometty ’s search for revenue growth.

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Steven Milunovich, an analyst at UBS Securities, estimates that IBM’s System Z mainframe line will generate about $2.3 billion in revenue in 2015, an increase of nearly 10% driven largely by the hardware upgrade. The downside of such transitions is that customers often hold off purchases when new machines are expected; mainframe revenue declined 35% in the third period ended in September.

“Over the past two years, their biggest financial problems have been in hardware,” Mr. Milunovich said of IBM.

The company, which recently sold its x86 server business to Lenovo Group Ltd. , also uses mainframes to drive purchases of IBM software and consulting services. In all, Mr. Milunovich estimates mainframes generate about 20% of IBM’s pretax profit.

Besides executing transactions like payments or stock trades, the z13 simultaneously analyzes them to track anomalies or patterns of business activity, IBM said. Such processes are usually handled subsequently, often on different machines.

Those real-time analysis features, the company said, can bring benefits such as helping banks and other financial services detect and block fraudulent transactions before money is lost. “They want to be able to prevent the fraud—not detect it after the fact,” said Tom Rosamilia, IBM’s senior vice president for systems.

One customer enthusiastic about such features is Citigroup Inc., a longtime IBM user that favors mainframes for both reliability and security. “Security is in the DNA of the mainframe,” said Martin Kennedy, Citi’s managing director for platforms and storage. 

Another factor shaping the bank’s needs, Mr. Kennedy said, is the rising volume of transactions carried out using smartphones and other mobile devices. Mainframes are particularly good at combining data from a variety of systems and presenting them to a user’s mobile app, he said.

IBM’s z13 comes in configurations with up to 141 calculating engines, or processor cores, using chips that have six, seven or eight cores each. Each core can handle up to 50 server-class computing jobs, using a technology called virtualization, the company said.

Many of IBM’s traditional customers use business programs that were written to run on its mainframe operating system. But the machines also run Linux—which is widely used on x86 servers—and other new-wave programs to carry out business tasks such as Hadoop.

Those features are attracting new customers, including online airline reservation processor Radixx International Inc. Ron Peri, its chief executive, said he expects to achieve significant cost savings by shifting most operations to the z13 mainframe from x86 servers.

“This is a major shift, and one I frankly didn’t think we’d do,” said Mr. Peri. “The benefit is overwhelming.”

The new IBM system starts at around $200,000, while typical x86 servers cost several thousand dollars each. But Mr. Peri said the mainframe’s cost was balanced by the sheer number of servers needed and the labor associated with making sure those machines and other components from many vendors work reliably.

Analysts say attracting new customers is less important for IBM than keeping customers from defecting to x86 systems.

“Mainframes are not a growth area,” said Patrick Moorhead, a market researcher at Moor Insights & Strategy. “It’s more about, ‘How do we keep this thing from going down?’”