IBM's new enemy: the white box

LAS VEGAS - If IBM's hardware division has an enemy number one in 2005, it may be the lowly white box server. Speaking at the company's annual PartnerWorld conference in Las Vegas Tuesday, IBM's top hardware division executives said the company is spending millions to become more competitive selling to small and medium-sized businesses that have embraced commodity servers.

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Central to this push are technologies like the company's BladeCenter line of ultra-thin servers, as well as the new X3 system architecture that the company announced last week, which build on the same Intel x86 processors that are also used by white-box vendors. So-called white boxes are unbranded systems built from standard components.

IBM has invested heavily in its x86 server designs -- the company spent $100 million developing X3 alone -- but the investment appears to be paying off. IBM's x86 server sales grew by 22.4 percent in 2004, faster even than sales of similar products from Dell.

"This was a market where people said you couldn't add value and you couldn't differentiate," said Bill Zeitler, senior vice president and group executive of IBM Systems & Technology Group. "You can add value, you can differentiate."

Claiming that the small and medium-sized business (SMB) market is growing at more than three times the pace of the enterprise, IBM is keen to expand its presence in the space, executives said. "We've got to do better in SMB," said Emilie McCabe, vice president of worldwide systems sales with IBM's Systems & Technology Group. "We are putting more resources in SMB, sales resources and technical resources."

However, many of those resources will come from outside of the division selling the Intel-based xSeries. IBM plans to spend $1 billion over the next several years reinvigorating its neglected iSeries line of minicomputers, which have long held a foothold in the mid-market. "Our partners said that we've got to improve our image in the marketplace," said Mark Shearer, general manager of iSeries. "I have spoken with hundreds of partners and clients around the world and everyone tells me that the iSeries is the best kept secret."

One IBM partner was happy to see signs that IBM was reinvesting in iSeries. "They need to give the brand its individuality back," said Bernard Gough, president an d chief executive officer of NewGeneration Software Inc., an iSeries software developer based in Sacramento, California.

IBM's pSeries Unix division is also getting more involved in SMB marketing. It plans to double the size of its sales force and increase the number of pSeries systems in IBM's Express Portfolio of easy-to-configure systems for SMB users. In 2004, there was only one pSeries system listed in the Express Portfolio. By year's end there will be more than a half-dozen, the company said.

(Stacy Cowley in Las Vegas contributed to this story.)