IBM Has A New Computing Beast For Banks

February 16, 2016, 5:01 AM UTC
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LAS VEGAS, NV - JANUARY 06: IBM Chairman, President and CEO Ginni Rometty arrives at her keynote address at CES 2016 at The Venetian Las Vegas on January 6, 2016 in Las Vegas, Nevada. CES, the world's largest annual consumer technology trade show, runs through January 9 and is expected to feature 3,600 exhibitors showing off their latest products and services to more than 150,000 attendees. (Photo by Ethan Miller/Getty Images)
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IBM’s last 15 consecutive quarters may have investors grumbling as the company’s sales continue to decline. However, the company’s business of selling mainframes, the old-school powerful computing systems that banks typically use to handle their transactions, seems to be growing.

During IBM’s last earnings, the company said mainframe sales rose 16% year over year, although IBM did not give a specific revenue number. Now, IBM (IBM) plans to debut a new mainframe by March that it hopes will continue that positive trend.

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The new machine, the z13s, is based on the big mainframe that IBM introduced last year, but is intended for smaller companies like midsized banks and credit unions, explained IBM mainframe general manager Ross A. Mauri. Last year’s version was intended for the mega banks and giant airliners of the world that want powerful systems that can process millions of critical financial transactions without fearing data breaches or security mishaps, he explained.

Mauri pointed to the healthcare company and IBM customer SinfoniaRx as an example of the type of midsized business IBM hopes will buy the new machines. SinfoniaRx is a sort of pharmacist call center that acts as the middleman between patient and healthcare providers. The healthcare company consults with patients about their medications and handles issues like whether a drug is being over prescribed or if two prescribed drugs conflict with each other.

SinfoniaRx serves around 6 million people, but because it recently signed a deal with Walmart (WMT), it expects that number to jump to 40 million people, Mauri said. To handle that growth, the company will use the new IBM machine to process the sensitive healthcare data, he said.

IBM has been making mainframes since the 1950’s and never stopped, even as the company shifted to selling software and related licenses. Albeit a much smaller business than the company’s software business, the product line has weathered the storm of changing customer purchasing habits much better than IBM’s software products, in which sales fell 11% year-over-year during the last quarter. That continued decline in the company’s software business is a big reason for IBM’s overall business eroding.

IBM has dominated the mainframe market over the years, but competitors like Hewlett Packard Enterprise (HPE) and Dell have developed mainframe-like features into traditional servers.

Traditionally, mainframes were deliberately kept from connecting with other outside computers and software programs to prevent hackers from infiltrating the system. However, with the advent of cloud computing, in which businesses can rent computing resources from the data centers of tech giants like Microsoft (MSFT) and Amazon (AMZN), IBM had to tweak its mainframe to work with those cloud providers.

Now, companies will presumably be able to build new mobile apps on Amazon’s cloud, and then connect those apps to the new mainframe to process sensitive information like healthcare transactions that they don’t want to store in another data center.

The new mainframe will also include a number of security features, but customers will have to pay extra.

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One new security feature is an extra hardware card that a customer can attach to the machine to increase how quickly it can encrypt data (an IBM spokesperson said this security feature will not cost extra). Another feature includes threat-detection software that companies can install into the mainframe to scan for malware or potential hacking on their networks.

IBM is also partnering with security companies BlackRidge and Forcepoint, and tech company RSM Partners for additional security features. These include services for companies to ensure only the correct people can access particular devices connected to the mainframe, and software that shows a visual representation of how secure the mainframe is.

These services will cost extra as well, and IBM will log all that security related cash (except for the cards for encryption) into its security business unit and not its mainframe unit on its balance sheets.

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