Three ways IBM can shine after shedding its CPUs

With its processor division on the way out, IBM turns software and services to stay profitable and relevant, but there's no magic wand for Big Blue

You could scarcely find a bigger portent for the end of an era in the computing world than IBM shedding its consumer PC and x86 server divisions to Lenovo.

Now IBM is leaving its hardware legacy even further behind as it prepares to pay GlobalFoundries anywhere from $1.3 to $1.5 billion in cash over three years to take the money-losing processor manufacturing division off its hands.

In the long run, that's good news since it means IBM can concentrate on the parts of its business that are either proven moneymakers or growth markets. But the other roads may be no less rocky than the ones IBM is leaving behind.

Hardware technology licensing

IBM may be unloading its chip manufacturing facilities, but it's keeping its semiconductor research -- its intellectual properties and its chip designs -- on a tighter leash.

One analogy is that IBM is approximating ARM's approach, as it has already been sublicensing its Power processor design to other companies. IBM's also pumped money into software development, mainly Linux, to better give the Power processors access to the same world of software powering the x86 line.

The hard part will be getting data centers of any description to see Power as advantageous and pick up on it in the first place. White-box X86 hardware is only getting cheaper and more powerful, with less emphasis on raw processing speed and more on the flexibility and rapid iteration unlocked through groundbreaking software (such as Docker). ARM-powered systems, which yield savings via low power consumption and high density, pose their own competition as well.

IBM may lose its manpower and expertise in this department; earlier analysis of the deal indicates that GlobalFoundries covets the engineers and intellectual property, not the fabs themselves (which may be "mothballed or destroyed" rather than retooled, according to one analyst). IBM still keeps a decade-long partnership and patent cross-licensing program with GlobalFoundries under the deal, but it won't drive the direction of that research any longer.

The cloud

IBM can't modernize without becoming a cloud company to some degree, if only because nearly every other old-school technology company of its stature -- HP, Microsoft, Oracle -- has done the same in some form.

IBM's delved into that space, mainly by buying an existing infrastructure provider (Softlayer) and offering its own PaaS (BlueMix, built partly with Cloud Foundry). SoftLayer has a lot to recommend it, and BlueMix seems a good way for IBM to corral and rebrand all its existing software products as cloud services. Both also keep IBM's existing customers from defecting too quickly.

But IBM's competition -- Google, Amazon, and Microsoft -- are all not only deeply entrenched but engaged in a game of high-speed one-upsmanship to bring lower prices and more flexible services to their customers. So far, IBM's been able to offer good value to its customers, but hasn't been able to make as much of a case to stand shoulder-to-shoulder with the big three.

New directions

A company of IBM's size and stature can't survive without taking some risks, so IBM is putting its weight behind a few moon-shot projects. Chief among them is Watson, its much-ballyhooed "cognitive computing" project. It's gone from "Jeopardy" winner publicity-stunt headlines to having its services made available to BlueMix developers through a select set of APIs, or through its still-in-beta data-cleansing service.

Rather than build the actual killer app for Watson, IBM's plan is to monetize Watson as a service while at the same time keeping its inner workings a proprietary secret. Even less publicized, IBM plans to leverage Watson for possible future revenue by way of "emergent intellectual property," or the extrapolations that Watson itself makes based on the way IBM's customers supply it with data.

All this is a long way from providing IBM with a plan that's profitable, groundbreaking, and difficult for others to duplicate or co-opt. Small wonder IBM hasn't turned up its nose at smaller, shorter-term projects like its partnership with Apple for business applications; the collaboration gives IBM a chance to become part of a growing market of well-tailored business apps for mobile environments. What are the odds such presumably mundane deals turned out to be IBM's real step forward?

Copyright © 2014 IDG Communications, Inc.

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