While International Business Machines (IBM +0.98%) generates most of its revenue from software and consulting services, the company's hardware business is still an important piece of the puzzle. IBM's mainframe systems, known for their extreme reliability, remain a workhorse in certain industries. Of the world's 50 top banks, 43 use IBM's mainframes to handle mission-critical workloads.
Every two to three years, IBM refreshes its mainframe lineup with a new model that brings improved performance and expanded capabilities. IBM works with its clients to push the mainframe in the right direction, and lately, that direction has been toward artificial intelligence (AI).
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Key Data Points
A mainframe with AI superpowers
IBM announced its latest mainframe system, the z17, on Tuesday. The z17 is powered by the IBM Telum II processor, which the company detailed last year.
In addition to general performance improvements over its predecessor, the Telum II features an on-chip AI accelerator capable of churning through 450 billion AI inferencing operations per day. Response times are around one millisecond, making the system ideal for use cases that need near-instant results. One example IBM noted was running a credit card fraud-detection model in real time as transactions are being processed.
On top of the AI capabilities of the Telum II processor, IBM plans to launch its Spyre Accelerator in the fourth quarter of this year. Spyre is an AI expansion card that can be plugged into the z17 to provide more computational horsepower. With Spyre, clients will be able to make use of AI assistants and agents built on IBM's Granite models, bringing generative AI to the mainframe.
Following up a strong mainframe cycle
Each time IBM launches a new mainframe system, sales temporarily boom as clients upgrade from older models. The z16, which is nearly three years old at this point, delivered a strong product cycle for IBM.
As of the end of the fourth quarter of 2024, the z16 was the most successful mainframe cycle in company history. In terms of MIPS, a metric IBM uses to measure a mainframe system's processing power, the z16 install base increased by about 30% over its predecessor.
The z17 launches in June, so IBM will see a meaningful increase in mainframe revenue during the second half of the year. In the third quarter of 2022, the first full quarter of z16 availability, mainframe revenue soared 88% year over year. IBM doesn't break out mainframe revenue directly, but hybrid infrastructure, which includes mainframes and other hardware products, generated revenue of $8.9 billion in 2024.
Beyond an increase in hardware sales, the new mainframe can drive software and consulting sales, particularly related to AI. IBM has booked more than $5 billion worth of generative AI-related business so far, and the bulk of that came from consulting signings. As mainframe clients upgrade to the AI-enabled z17, other parts of IBM could get a boost.
The new mainframe is one reason IBM was able to guide for revenue growth of more than 5% this year, an acceleration, compared to 2024. Achieving that outlook could prove challenging, considering the recent U.S. tariffs and the potential for a broad economic slowdown. However, IBM's mainframes are mission-critical systems, and the z17 delivers AI capabilities that are likely to be in demand from its clients.
With the z17, IBM continues to evolve the mainframe and maintain its relevance. With a focus on AI, the z17 should drive another strong mainframe cycle for IBM.
