IBM gets fat on Oracle-HP Itanium spat

With Oracle pulling the rug out from underneath Intel's Itanium processor in an effort to undermine rival HP's Unix-server business, two obvious questions arise: What makes Itanium so special that it has roused the disaffections of the software giant? And why hasn't Big Blue's Power Systems platform been tarred with the same brush?

It is hard to guess what Oracle cofounder and CEO, Larry Ellison, is thinking, or what his co-presidents, Mark Hurd and Safra Catz, are advising as Oracle gets into yet another legal battle with HP.

This latest dust-up is over the software giant's decision back in March to halt development of database, middleware, and application software for the Itanium family. Intel's Itanium roadmap calls for "Poulson" Itaniums next year and "Kittson" follow-ons in 2014 or so; with the latter for sale for at least two years, that makes the Itanium chips viable to at least 2016.

That's as far as Oracle gets with its own Sparc processor and system roadmap. But Oracle contends that HP is being dishonest with its own customers, and that they plan to sunset Itanium in favor of Intel's Xeon processors. Neither Intel nor HP have explicitly confirmed or denied this claim, but HP sued Oracle two weeks ago because that claim has caused damage to its Integrity server business.

The onslaught of Xeon and Opteron processors in the server racket, and the increasing dominance of Windows and Linux as operating systems of choice for lots of customers, would seem to make all non-Windows and non-Linux platforms suspect in terms of their long-term viability.

That includes IBM mainframes, IBM Power Systems, HP Integrities, and Oracle Sparc Enterprise M and T machines. All four have skads of legacy customers who have spent gazillions on application development, tuning, and processes for keeping the applications that run their businesses humming along.

Oracle didn't want the Sun server business anyway, so Oracle's commitment to hardware is called into question by many. IBM sells off any business that doesn't chuck out big bales of cash – including memory, low-end printers, networking equipment, high-end printers, PCs, and disk drives, just to name a few that Big Blue has jettisoned. Even server wannabe Cisco Systems must be thinking hard about its decision to enter the server racket, alienating many of the customers who formerly paired their servers with Cisco networking gear.

IBM has been doing a pretty good job poaching Unix customers from both Sun/Oracle and HP over the past several years, and the HP/Oracle tit-for-tat over Itanium only helps Big Blue. Or at least that's the story the public is being told.

"As you would expect, this is of high interest to IBM, not just because of our competitive position with HP, but because of where those Itanium customers have to go," explains Dave Gelardi, vice president of worldwide technical sales for IBM's Systems and Technology Group – the part of the unified Systems and Software Group that makes Power processors as well as mainframe, Power, and x64 servers, related storage arrays, and systems software such as operating systems and clustering programs.

"When this sort of thing happens," Gelardi says, "there are some companies who are worried and they will accelerate their plans."

Since the first quarter of 2009, when the Great Recession was going great gut-wrenching guns, IBM has done nearly 2,000 competitive replacements with its Power Systems machines, generating about $2bn in revenues and setting itself up for multiples more than that over the course of a five- to ten-year run if it can keep those customers happy and upgrading.

In the first quarter of 2011, IBM did 210 competitive replacements, generating over $200m in revenues during the quarter. About 60 per cent of those deals came out of Oracle/Sun accounts, and the other 40 per cent came from HP accounts.

This competitive-replacement ratio by IBM's Power Systems unit has held more or less steady over the years. Given this fact, you would think that Oracle would be making a lot of noise about how IBM's Power7+ processors are largely unknown, how even less is known about Power8 chips, and how there is nothing at all being said about Power8+ or Power9 chips further down the road.

IBM is obviously the bigger threat to Oracle, not just because it has the undisputed lead in Unix system sales, a wickedly profitable mainframe base of 4,000 customers that are absolutely locked in, its own database and middleware stacks to sell against Oracle, and a strong partnership with Microsoft and SAP should it come to an all-out war that included applications. HP doesn't have its own databases and Itanium is perceived – perhaps unjustifiably and no doubt because of the hype more than a decade ago – as the weakest of the x64 processor alternatives.

Gelardi says that IBM has not really seen a big increase in competitive takeouts since Oracle made its announcement in late March, but adds that over the longer haul, IBM will probably see the pace of deals pick up.

"The beauty of the current market is that there are only so many choices," he says. "So we are always benefitting."

That does not explain why Power chip can't – or won't – suffer the same fate as Itanium at Oracle or in the market at large. Yes, IBM has its own chip-making fabs in East Fishkill, New York, as well as its own processor design teams and the research and development budget to keep it all going. For now.

IBM has a tidy business selling Power-derived processors for game-console makers Sony, Nintendo, and Microsoft, and also gets a fair amount of development money – hundreds of millions of dollars a year – from the US government and supercomputing centers for high-end Power-based clusters.

Itanium does not have these assets backing it up. There's just Intel making them and HP selling them at this point, with a few boxes being sold by Bull, NEC, and a few upstarts such as Super Micro, Huawei Technologies, and Inspur.

But IBM has another ace in the hole, apparently.

"I think that the reason we won't end up in the same boat as Itanium is that the Power market won't end up in the same spot," says Gelardi. "There is no software company in the world that wants to be dependent on one hardware supplier."

So as Oracle beats up on HP, IBM gets to mop up – and maybe more than Oracle itself. ®