BUSINESS

The remains of the day

JOHN DALY May 2 1994
BUSINESS

The remains of the day

JOHN DALY May 2 1994

The remains of the day

BUSINESS

JOHN DALY

When Jim Sauer, the vice-president of technical services at the Toronto-Dominion Bank’s central computing facility, joined the bank in 1970, bigger was not just better, it was the only option. In those days, when a large corporation needed to buy or upgrade a computer system, it bought a mainframe—a collection of refrigerator-sized units spread over an entire floor of office space which, in tum, was linked to terminals in the bank’s offices and branches across Canada. The prices started in the millions. And one supplier dominated the market: International Business Machines Corp. (IBM) of Armonk, N.Y. But since the mid-1980s, mainframe sales have plummeted as companies have shifted to medium-sized microcomputers or networks of personal computers. Smaller manufacturers, including Hitachi, Amdahl and Unisys, are now fighting hard against IBM in a shrinking mainframe market. Last month, in a bid to regain lost ground, IBM unveiled a new line of large computers. However, with all the options that buyers like Sauer now have, any mainframe sales representative dropping by his office these days faces a tough sell. “I wouldn’t say something like we’ve got those guys where we want them,” Sauer, 52, said with a smile. But he added: “We look at a lot more alternatives now.”

Even executives at IBM and its competitors concede that the sales prospects for so-called big iron are ^ bleak. However, the market for ~ mainframes is still large enough that they are reluctant simply to abandon it. In IBM’s case, the company’s mainframe sales totalled $8.7 billion last year—half the level of 1990, but nothing to sneeze at. And IBM still outsells its nearest rivals by at least 5 to 1 in the mainframe market. On the other hand, while the company’s small computer sales continue to increase, mainframe revenues were 12 per cent lower in the first quarter of 1994 compared with the same period a year earlier, and IBM executives expect that trend to continue. Company chairman Louis Gerstner, the former head of food and tobacco giant RJR Nabisco Holdings Corp., who succeeded former chairman John Akers after a boardroom revolt last year, says that IBM must exploit its traditional strengths more effectively to reverse three years of heavy losses. ‘We still have a long way to go,” Gerstner said in a written statement. He will likely elaborate on

Small computers are all the rage, but manufacturers are still battling it out in the mainframe market

that theme this week when he hosts IBM’s annual international shareholders meeting, which this year will be held in Toronto.

Even the word mainframe now has a negative ring to it in industry circles, where large centralized computers are sometimes dismissed as lumbering dinosaurs. Dan Fortin, IBM Canada Ltd.’s general manager of largescale computing and storage, said that the company unveiled its new line of mainframes before an audience of 300 customers at a Toronto hotel three weeks ago. “A lot of them said things like, ‘I didn’t realize there were others. I thought we were the only ones,’ ” Fortin said. To remove some of the stigma associated with mainframes, Unisys Corp., based in Blue Bell, Pa., now calls its large systems “enterprise servers.” Said Bud Slocki, manager of enterprise strategies for Unisys Canada Inc.: “It sounds a little better.”

At least part of that perception is based on performance. With the introduction of personal computers and improved mid-sized microcomputers in the 1980s, many businesses found that they could do some work on the smaller computers at a fraction of the cost of doing it on the large systems. Desk-top computers powered by fingernail-sized microchips are much better suited than main-

frames for small jobs like word processing or analysing a department’s budget. As well, unlike older mainframe models, which are powered by layers of textbook-sized circuit boards, the small computers do not need to be kept in special sealed rooms, where complex cooling systems regulate temperature.

The computing needs of banks, insurance companies and other traditional mainframe customers are also changing—and smaller systems are better suited to many of those requirements. Sauer says that the TD Bank and its rivals are all installing networks of personal computers in their branches, in part because they “put a friendlier face on the screen.” Employees helping customers assess RSP investment strategies, for instance, do not need access to a central computer to show them how those options will affect their finances. Even a desktop machine that retails

for under $2,000 can do that with catchy color graphics. For some larger tasks, midrange computers are now powerful enough to manipulate huge amounts of data that once only mainframes could handle. Strolling past the TD Bank’s sprawling mainframe system at a secret Toronto location, Sauer points to a refrigerator-sized unit standing alone. It is a mid-sized computer used for “decision support” functions such as probing the bank’s main records to answer specific questions about depositors.

However, there are still some tasks that are simply too large for the smaller systems. For the banks and other users who must maintain and update the centralized records of hundreds of thousands of clients instantaneously, a mainframe is the only option. The TD Bank’s central mainframe processes more than five million transactions a day from the bank’s 965 branches and 1,850 automated teller machines across the country. “If you put that much work in one place, you need power,” said Sauer.

He added that the bank needs to expand the system’s storage capacity by up to 30 per cent every year.

Even if smaller systems could handle the workload, most large users have too much time and effort invested in both their mainframe hardware and software to even consider replacing them. “We’ve got two decades and almost a billion dollars invested in those systems and applications,” said Marc Lachance, director of software services for the Canadian Imperial Bank of Commerce. “That’s not going to disappear in a year.”

As well, at least some of the initial excitement over the improved mid-range computers and networks of personal computers introduced since the 1980s has faded as companies gain more experience with them. Servicing and repairing a far-flung network of small computers can be more time-consuming than maintaining a single central computer. “Certainly, the original technology is cheaper,” said Edward Brndiar, vicepresident of information systems at Sun Life Assurance Co. of Canada. “But it’s very manual-intensive to support it.” Brndiar added that it is harder to keep files and records confidential if they are spread out.

IBM and its competitors are trying to counter the alarming erosion in the mainframe market, in part by making their large units work more like smaller computers. The new mainframes that IBM introduced last month are powered by anywhere from two to 192 microprocessors linked together. In addi-

tion to reducing the physical size of the computers, the new technology makes it easier for users to custom tailor the power and capacity.

However, the big battleground between IBM and its rivals remains price. The companies do not reveal list prices, but IBM’s Fortin said that it is common in the industry to compare the cost of processing one million instructions per second (MIPS). “We went below the $100,000 (U.S.) per MIPS bar-

rier in 1992,” said Fortin. Now, through a combination of rapidly improving technology and lower prices for components, Fortin said, mainframe costs are down near $30,000 to $35,000 per MIPS. Compared with small and medium-sized computers, Fortin said, “the costs are not out of whack.”

But Big Blue’s mainframe rivals smell blood, arguing that they have a cost advantage over IBM. The company has reduced its global staff by more than 150,000 since 1986, including nearly 4,000 of 12,800 jobs in Canada. It plans to eliminate another 28,000 jobs worldwide this year. Unisys Canada’s Slocki, 53, who joined the company after taking voluntary retirement from IBM last fall, said that IBM saddled itself with too many plants and employees during the booming 1980s. Since then, he said, it has dragged out its downsizing too long, incurring billions of dollars in restructuring charges. Slocki added: “It’ll be tough for them over the next two to three years.”

Despite that kind of bravado, none of the mainframe manufacturers are likely to win over many new users to large computers. And whoever prevails will have to make do with profit margins that are significantly smaller than their computers.

JOHN DALY