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Microsoft funds object of IBM's mainframe fury

PSI pockets $37m

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Microsoft has put its loaded name behind PSI - a Silicon Valley-based start-up currently at war with IBM in the mainframe market.

PSI (Platform Solutions Inc.) this week revealed Microsoft as a new investor participating in its fresh $37m Series C funding round. Redmond joins companies such as Intel, Goldman Sachs and InterWest Partners that also back PSI's odd mainframe play. Along with the funding, Microsoft has signed a joint sales agreement with PSI that will see both companies hawk Windows Server 2008 on PSI's machines.

Having more money and a company of Microsoft's weight behind it should give PSI a major boost as it fights IBM during a costly and protracted legal spat.

PSI has partnered with HP and NEC to craft Itanium-based high-end servers that - through some software magic - can run IBM's mainframe operating system and mainframe software. As a result, customers can find cheaper, higher performing systems that accomplish many of their lower-end mainframe tasks. In addition, PSI likes to play the consolidation card, bragging that it can run z/OS, Windows and Linux on the same box.

The company has struggled to get its mainframe play off the ground due to Intel's near constant delays getting new Itanium chips out the door and a host of other reasons. It has, however, managed to capture the attention of some customers and of HP, which sought to acquire PSI for close to $200m.

The deal with HP fell through, according to PSI, after a lawsuit arrived from IBM.

In 2006, Big Blue hit PSI with a patent infringement suit and has stopped supporting applications running on PSI's mainframe copies. PSI returned fire in 2007 claiming that IBM is abusing its mainframe monopoly to keep a competitor out of a market that PSI values at $28bn.

Earlier this month, leading mainframe reseller QSGI warned that it would have to exit the mainframe business due to "a leading OEM" - hint: IBM - blocking its ability to sell refurbished boxes.

"We believe, and the thing IBM has been missing, is that we are not bad for IBM," PSI CEO Michael Maulick told us. "We would help the marketplace grow, since customers would not be forced to migrate away from mainframe systems.

"We will be around, and IBM will have to deal with us one way or another."

As PSI's legal spat plays out with IBM, the company is in what it calls "limited availability." Only select customers can tap its System64 product line, since PSI must handle all of the support for the systems on its own.

The company hopes, however, that the new funding will help it expand these support operations and charge into new markets alongside Microsoft.

While Microsoft and mainframe are rarely mention in the same sentence, Maulick argues that it's only natural for Redmond to embrace these big iron copies. Microsoft wants to forge a path to all of the information sitting on customers' mainframe boxes and needs a tool for the job.

"It is all about the data," Maulick said. "Sixty to seventy percent of corporate data is controlled by the mainframe environment."

In the coming weeks, PSI plans to show off its latest and greatest hardware built around fresh Montvale-based systems from HP and NEC. ®

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