IBM Shakeup: Was the Writing On the Wall?

Ready for the rundown? At the behest of IBM corporate titans Steve Mills, Doug Elix and Bill Zeitler, the following changes have been made: Donn Atkins, head of worldwide sales operations for IBM Software, is replacing Borman as general manager of global business partners. Atkins will be replaced by John Swainson, current general manager of the application integration management group overseeing IBM's middleware brands. Taking over the middleware post is current Tivoli general manager Robert LeBlanc, who will be replaced by Al Zollar, who cedes iSeries to Borman. All changes are effective immediately.

Whew. Is your head spinning yet?

One might say the writing was on the wall after IBM announced its Q2 results last week. Amid an otherwise strong performance marked by a 7 percent increase in revenue, to $23.2 billion, and a 15 percent bump in profit, to $2 billion over Q2 2003, IBM's balance sheet sported a couple of very sore thumbs sticking out. Sales of the aforementioned iSeries midrange systems fell off the cliff, decreasing 28 percent quarter to quarter. IBM attributed the poor sales to customers putting off purchases as they waited for the servers to sport the new P5 chip architecture, but as one source said this week when told about the executive restructuring, "Hey, someone's got to fix iSeries."

Whether iSeries can be fixed will depend largely on the outcome of the company's big bet on that P5 architecture. But it's somewhat doubtful that sales of the existing midrange boxes are going to resemble their glory days again, though Borman told VARBusiness on Tuesday that he had confidence in the brand he dubbed one of the "best franchises in industry history."

Slightly more ominous might be the situation over at IBM Software Group, which as a whole pretty much disappointed in Q2. Earnings for Big Blue's Software Group came in essentially flat, at $3.5 billion, echoing to an extent the stagnant sales reported by fellow software companies, such as Veritas and PeopleSoft, during this quarter. But clearly, given the severity of the executive switcheroo, the software results struck a big-time nerve inside IBM. The brass' reaction -- shifting around the head of worldwide software sales, and general managers of Tivoli and the middleware brands -- implies that more is going on than a few large deals deferred, coupled with software market weakness in general.

Take a look at the numbers for Q2: IBM's operating-systems sales decreased 2 percent to $577 million, and of the five major middleware brands, only WebSphere posted a gain in sales -- just 2 percent -- over the same period last year. Data management revenue declined by 3 percent, although sales for IBM's DB2 database software, which falls under that brand umbrella, went up by 5 percent. Tivoli management software decreased by 5 percent over Q2 2003, while Lotus collaboration software went down 2 percent and Rational development tools by 5 percent.

One reason for the sluggish software sales is rooted in an age-old IBM problem: too many products, too many versions of them, and lack of unified code base underneath them. The company, under the auspices of its Rational division, is working feverishly to resolve this problem by eliminating the need for separate developer tools for every piece of software, but rivals like Microsoft, BEA and Oracle are gaining ground because of their more streamlined, out-of-the-box solutions.

IBM and, by extension, partners are also in transition, moving from a sales model focused on individual brands to one that emphasizes industry-specific solutions that cross-pollinate across the software in IBM's arsenal. This approach is seen as largely wise, but implementation and uptake will take some time. And a bright note for IBM has been its success with the broader ISV community, which it sees as key to driving its middleware sales. And the company's midmarket-oriented Express products are also beginning to catch fire.

All told, the big question for partners is whether the executive changes will bring about instability or help partners land more business. Either way, the moves show that IBM is willing to do what it must to enliven sagging parts of its empire.