International Business Machines' (NYSE:IBM) mainframe computer, first introduced more than 50 years ago, remains an integral part of many companies' IT infrastructures. Visa, for example, uses IBM's mainframes to power its global payment network, settling more than 150 million transactions each day with essentially no downtime.
Mainframes also remain a big part of IBM's business. While the hardware itself accounts for a small portion of IBM's overall revenue, software and services related to the mainframe account for a significant portion of IBM's revenue and profits. According to Toni Sacconaghi, an analyst with Sanford Bernstein, the mainframe, directly and indirectly, accounts for roughly one-quarter of IBM's revenue and more than one-third of its profits.
Ensuring that organizations continue to depend on its mainframe systems is critical for IBM, and the company recently made a few major announcements that could help renew interest in the mainframe. IBM is launching two new mainframe systems under the brand name LinuxONE, the first mainframe systems from IBM to exclusively run the Linux operating system.
Further embracing Linux
IBM's mainframes have supported Linux for over a decade, so this announcement isn't really earth-shattering. But by marketing these new systems as extremely powerful and secure Linux servers, IBM is targeting mid-sized and large organizations that currently use Linux-based systems, either on-premises or in the cloud.
There are two versions of the LinuxONE mainframe: Emperor and Rockhopper. Emperor is based on IBM's z13 mainframe system, which launched earlier this year, and is aimed at large organizations. Emperor can support up to 8,000 Linux virtual machines simultaneously, or hundreds of thousands of containers. Rockhopper is a smaller system using an older mainframe processor aimed at mid-sized organizations and emerging markets, providing the benefits of a mainframe in a smaller, less expensive package.
SVP of IBM Systems Tom Rosamilia had this to say:
Fifteen years ago IBM surprised the industry by putting Linux on the mainframe, and today more than a third of IBM mainframe clients are running Linux. We are deepening our commitment to the open source community by combining the best of the open world with the most advanced system in the world in order to help clients embrace new mobile and hybrid cloud workloads. Building on the success of Linux on the mainframe, we continue to push the limits beyond the capabilities of commodity servers that are not designed for security and performance at extreme scale.
LinuxONE supports popular open-source software such as Node.js, MongoDB, and Docker, and IBM is contributing a significant amount of mainframe code to the open-source community in hopes of making the mainframe more accessible for developers.
What it all means
In addition to launching these new systems, IBM is introducing a pay-as-you-go model, similar to how the public cloud is paid for. IBM will still sell and lease the systems, but it will also allow customers to pay based on usage. Details are scarce, but combined with the cheaper Rockhopper model, this financing option could dramatically lower the cost of entry for IBM's mainframe systems.
Why is this important? IBM's mainframes, in the right usage scenario, can offer significant savings over x86-based systems. IBM claims that LinuxONE costs half as much as public cloud environments at scale, when the systems are used to their full potential.
By emphasizing Linux and offering a usage-based payment option, IBM is aiming to lower the cost of entry and broaden the potential customer base for its mainframe systems. Linux is nothing new on the mainframe, but IBM's embrace of open-source software could potentially attract new mainframe customers, particularly those looking to adopt a hybrid cloud model.
IBM is probably battling a perception problem, where its mainframes are viewed as stodgy relics from another era. By fully embracing Linux and supporting a variety of popular open-source software, IBM has made it much easier for potential customers to move to a mainframe. Only time will tell whether they actually will.
Timothy Green owns shares of International Business Machines. The Motley Fool recommends Visa. The Motley Fool owns shares of Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.