While International Business Machines (IBM 2.20%) now derives most of its revenue from software and consulting, the decades-old mainframe business is still an important part of the century-old tech giant. Industries like banking and insurance still depend on the hulking systems, known for their extreme reliability.
IBM tends to launch a new generation of mainframe system every two or three years, and the next launch should be right around the corner. At the Hot Chips 2024 conference, the company laid out some details on processor that will powering the next-gen system.
NYSE: IBM
Key Data Points
Built for AI
IBM next-gen mainframe will be powered by the Telum II processor. Each chip features eight CPU cores, a large pool of fast cache memory, and a built-in AI accelerator meant for inferencing workloads. IBM says that Telum II will have four times the AI compute capacity of the original Telum processor which launched in 2021. The Tellum II processor is built on a 5nm process from Samsung.
Each AI accelerator can reach 24 trillion operations per second, or TOPS. While that may not seem all that high -- a top of the line AI accelerator from Nvidia is measured in the thousands of TOPS -- there are a couple important points to consider. First, Telum II is aimed at inference workloads, not heavy-duty AI training workloads. Second, it's designed to run these inference workloads in tandem with other enterprise workloads at low latency.
In cases where customers need more AI horsepower, IBM is readying its Spyre Accelerator for launch next year. Each Sprye accelerator features 32 AI accelerator cores similar to those on the Telum II and can be connected to an IBM mainframe system via PCIe.
A revenue boost in 2025
IBM's mainframe revenue surges when the company launches a new generation as some customers upgrade. The addition of more powerful AI technology this time around could help convince customers with older models to take the plunge and upgrade.
The current mainframe generation, the first to feature built-in AI acceleration, has been surprisingly strong for IBM. Mainframe revenue was up 8% year over year in the second quarter of 2024. That's unusual for a system that was announced more than two years ago. Typically by this point in the product cycle, mainframe revenue is in decline in the lead up to the next launch.
IBM confirmed that its next-generation mainframe systems featuring the Tellum II processor will be available to clients in 2025, with the Sprye accelerator also on tap for next year. Not only will this boost revenue in the infrastructure segment, but it could also help IBM sell more software. As mainframe clients look to tap into the increased AI capacity of the new systems, the company should see a positive impact for its AI-related software business.
Things have been looking up for IBM this year. The company expects to hit its mid-single-digit revenue growth target, and it recently raised its free cash flow guidance above $12 billion. With the stock trading for just 15 times that free cash flow guidance, IBM looks like an AI bargain.
