STG Bolstered by Product Performance, Management Stability
STG’s strong performance, helped boost the company’s stock which is now trading at $194.50, very close to a 52-week high. Big Blue’s across-the-board strong performance got a further lift when it was revealed in November that Warren Buffet, invested $10.7 billion, equal to a 5 percent stake in IBM. Buffet’s investment was no doubt sparked at least in part, by the fact that IBM’s Return on Equity to shareholders is 69.84 percent, according to Capital IQ.
While both IBM and STG’s financials tell a compelling tale, they are not the whole story. IBM in general and STG in particular, clearly owe their strong showing to the features and performance of the products. However, IBM’s ability to deliver strong after-market technical service and support, the stability of its business and its’ ability to steer clear of the management tumult that has plagued rivals like Hewlett-Packard also play a large part in its success.
For the past three consecutive years, IBM AIX and Power Systems have recorded the highest uptime and reliability ratings in ITIC’s annual Server Hardware and Server OS Reliability Surveys. In the latest updated ITIC October 2011 poll, IBM’s AIX v7.1 UNIX OS running on the company’s Power System servers scored the highest reliability ratings and recorded the least amount of overall downtime from Tier 1, Tier 2 and Tier 3 outages among 18 different server OS platforms. Reliability is key metric that contributes to lowering or raising total cost of ownership (TCO).
Corporate customers interviewed by ITIC say they are equally impressed with the quality and celerity of IBM service, support and documentation when IT staff lodge technical support calls.
The stability of IBM’s upper management and its ability to provide smooth, orderly leadership transitions resonates well with customers, Wall Street, press and industry analysts. After a decade as Chief Executive Officer Sam Palmisano will step down and will be replaced by Ginni Rometty, IBM’s senior vice president for sales, marketing and strategy, overseeing IBM’s Global Business Services unit, on January 1.
The solid management also extends to STG. Adkins, a 30 year IBM veteran, has successfully headed the group since 2005 and this plays a key role in customer retention. The STG management team has consistently delivered a clear message that includes tactical product launches and long-term strategic direction. This is stark contrast to the upheavals at competitors like HP and Oracle where tumultuous management changes occur with alarming frequency (HP) and large, often hostile mergers and acquisitions and nebulous product roadmaps (Oracle) have left customers scratching their heads regarding future product directions and undermines confidence.
Nowhere is this more evident than in the well documented and highly publicized disaffection of the Oracle (former Sun Microsystems) SPARC server installed base. IBM’s STG group has been able to exploit that dissatisfaction which accounted for a large portion of the Power Systems and System x’ competitive wins during 2010 and 2011.
Adkins and Steve Mills, Senior VP and Group Executive, in STG Software and Systems also outlined the group’s strategy for gaining new business in the ongoing tough economic climate where IT budgets are static. STG continues to invest heavily in research and development (R&D) to drive efficiencies and economies of scale to assist organizations in reducing IT management and labor costs and to cut power and energy consumption. Depending on the size and scope of the individual customer’s infrastructure and workload, Adkins claims that Power Systems servers running IBM’s DB2 are one-third the cost of Oracle DB. Similarly, he says, the System x can lower management costs by up to 50 percent and IBM’s storage platforms can assist businesses in lowering powering and operating cooling costs by as much as 60 percent.
Analysis
In order to maintain and extend STG’s current level of success through 2012 and beyond, IBM is now tasked with topping itself.
STG executives should continue to focus on:
• Differentiating the products: STG is a large group that encompasses servers, storage, cloud computing, software and systems offerings. It’s easy for even stalwart IBM customers to be overwhelmed by the sheer number of products and announcements. The STG Group must strive to highlight the most important product updates and announcements to customers. C-level executives and IT departments are overwhelmed by too much information. IBM’s STG group should emphasize the two or three most crucial products and services per quarter and communicate that via their sales and reseller channels and user groups. IBM has always been good about providing guidance but it must do even better.
• Delivering competitive acquisition, licensing and technical support costs: The biggest singular criticism leveled at IBM is the high cost of its after-market technical service and support. No one expects IBM to offer superior services at Flea Market prices. However, IBM has one of the largest service and support organizations in the world. IT could and should build goodwill in 2012 by offering special promotions, discounts and bundled incentives to loyal STG customers and prospective customers. A sizeable segment of the end user population is currently and will be strapped for capital expenditure funds for the foreseeable future.
• Appeal to Small and midsized businesses: IBM is well entrenched among large enterprises in high profile verticals like financial services, healthcare and government, to name just a few. Small and midsized businesses however account for nearly 60 percent of all businesses. SMBs with fewer than 300 users lack the clout and deep pockets of their enterprise peers. Nonetheless, their numbers and capital and operational expenditure power are enormous – particularly in emerging geographical regions like Africa, which is a big focus for IBM’s STG group. Indeed there are many SMBs in IBM’s vertical bailiwicks. IBM, its current and potential customers would all be well served by the availability of specific purchasing and licensing programs that provide aggressive entry-level price points and value-added licensing deals for SMBs.

Microsoft’s Windows Server 2008 and Windows Server 2008 R2 scored impressive reliability gains in the 2011 survey compared to the prior 2008 and 2009 polls. Survey respondents now rank Windows Server 2008 R2 as among the top three most reliable, mainstream server operating systems. Windows Server 2008 R2’s reliability renaissance is especially impressive since Microsoft’s Windows Server OS noticeably lagged behind the majority of the UNIX, Linux and Open Source distributions in the ITIC/Sunbelt Software (now GFI Software) 2008 and 2009 Server Reliability surveys. Among the other survey highlights:

• Security: The biggest surprise of the survey was the strong security showing by Windows Server 2008 R2
• Highest Percentage of Severe Tier 3 Outages: Oracle’s Solaris 10 running on SPARC hardware had the highest percentage of survey respondents — 16% – who said they experienced at least three and more than 12 unplanned per server, per annum prolonged Tier 3 outages lasting more than four hours.
• Lowest Percent of Severe Tier 3 Outages: By contrast just 5% of both IBM AIX v 7.1 and Microsoft Windows Server 2008 R2 survey participants reported experiencing at least three and more than 12 unplanned per server, per annum Tier 3 outages of more than four hours duration.
• Integration and interoperability issues: (e.g., incompatible drivers) and problems applying patches are the most common culprits of protracted, unplanned downtime. These problems are exacerbated when IT managers are forced to spend valuable time searching for fixes, or if the vendor has not yet recognized the issue and there is no fix.
• Server Age: A 57% majority of respondents said their servers – particularly the critical main line of business servers — are between one and three years old. Keeping the server hardware updated has a major impact on reliability. One-in-five survey respondents – 20% – said their servers were three-to-four years old.
• Server Refresh Rates: One-quarter – 25% — of businesses refresh their main line of business server hardware “as needed” and 10% said they upgrade a portion of their servers annually. However, 17% of survey participants said their organizations refreshed their main line of business server hardware every five-to-six years and another 15% indicated they had no specific timetable.

As with any poll, the survey did elicit some surprises. Foremost among these was the fact that organizations utilize a higher percentage of the inherent CRM solution’s functionality than previously thought. There is a long held perception that a significant portion of corporate end users find CRM packages too complex and fail to take full advantage of their features or avoid using them altogether. Failure to use a CRM solution not only squanders the corporation’s investment in the technology but it can also result in less efficiencies in tracking and managing customer relationships, with the unhappy consequence of making the end users less productive and their companies less competitive.
The survey findings contradicted those perceptions. A 52% majority of participants said that their businesses used 50% or more of their CRM’s functionality. However none of the respondents said they utilized “all” of the CRM’s functions. And nearly two-thirds or 60% of survey respondents indicated that in order to maximize CRM usage within the organization, senior executives lead by example and use it themselves.
As with any technology, CRM does present some challenges for would-be adopters. Foremost among these are: cost, complexity, ease of use and ease of manageability. Over half of the respondents revealed that they were using the “CRM-like” capabilities within Microsoft Office to achieve baseline CRM functions.

Hackers have had a bonanza in April, May and June
(so far). Nary has a day gone by without news of yet another major attack.
Here’s a partial list of some of the most publicized hacks of the last
10 weeks:

• RSA
  Security: On April 1, in a move akin to raiding Fort Knox,
  RSA’s Secure ID technology (one of the industry’s gold standards in security
  software) was hacked. RSA executives described the hack as “very
  sophisticated.” They characterized it as an advanced persistent threat
  (APT)-type targeted attack. It used a routine tactic – a phishing Email that
  contained an infected attachment that was triggered when opened.
• Epsilon:  This Irving, TX –based company handles
  customer email messaging for over 150 firms, including large banks and
  retailers like Best Buy, JPMorgan Chase, Citigroup and L.L.Bean. In April,
  millions of consumers learned that Epsilon’s networks were breached when they
  received Emails from their banks and credit card companies informing them that
  the hack might have exposed their names and Email addresses to the hackers.
  Epsilon released a statement assuring consumers that only Email addresses and
  names were compromised and that no sensitive data was disclosed.
• Sony:
  Sony’s
  PlayStation gaming network suffered a series of massive security attacks in
  April/May that affected more than 100 million online accounts and shuttered the
  site for days. Sony executives estimate the hacks cost the Japanese electronics
  firm $170 million.
• Lockheed
  Martin: On May 21, the aerospace giant released a statement
  saying its internal information systems network had been penetrated by what it
  called a “significant and tenacious” attack. The company declined to
  divulge details other than stating that “no customer, program or employee personal
  data had been compromised.”
• Public
  Broadcasting System: the PBS website was hacked in mid-May
  and the perpetrators planted an erroneous story stating that deceased rapper Tupac
  Shakur was alive in New Zealand. The group that claimed credit for the hacking was
  apparently unhappy about PBS’ recent “Frontline” investigative news program on
  WikiLeaks.
• Google:
  At least 84 instances of malware have been discovered in the company’s Android
  Market app store in the last three months. In March Google removed 50
  applications from the store that contained malicious code embedded in
  legitimate applications. Over the Memorial Day weekend Google was forced to
  pull an additional 34 smart phone applications off Android Market because of
  suspected malware infections. Google’s security woes don’t stop there. In early
  June, Google disclosed that Chinese hackers targeted the email accounts of top
  U.S. officials and hundreds of other prominent people in a fresh computer
  attack certain to intensify growing concern about the security of the Internet.
  The victims, including government and military personnel, Asian officials,
  Chinese activists and journalists, were tricked into sharing their Gmail
  passwords with “bad actors” based in China, according to a Google
  blog post. The attack’s goal was to read and forward the victims’ email.
• Apple
  (yes, Apple!): The Mac OX X 10.x OS has been under attack for
  the last month from the malicious Mac Defender/Mac Guard malware. A few days
  ago, Apple engineers released a fix and 24 hours later the hackers struck again
  with a new virus variant called Mindinstall.pkg which is specifically designed
  to bypass Apple security.

The 2010 Verizon report concluded that being prepared remains the best defense against security breaches. For the most part, organizations still remain sluggish in detecting and responding to incidents. Nearly two-thirds of breaches — 60% — continue to be uncovered by external parties and then only after a considerable amount of time. And while most victimized organizations have evidence of a breach in their security logs, they often overlook them due to a lack of staff, tools or processes.
Casciano maintains that any corporation that is serious about creating and maintaining a secure environment needs to deploy continuous monitoring tools. Right now there are two types of continuous monitoring devices: “those that address what’s going on in the enterprise and identify vulnerabilities and those that enable companies to plug holes and correct vulnerabilities in advance so the attack is not effective,” Casciano says. There are several companies that address this emerging market segment. Veteran security firm ArcSight which was acquired in 2010 by Hewlett-Packard Co. and the Einstein Program developed by the Dept. of Homeland Security produce products that enable businesses to identify the potential weak spots in their networks. Other companies like RedSeal in San Mateo, CA and the Security Content Automation Protocol (SCAP) address the rapidly emerging secure product class of both identifying and closing the holes in the network.
RedSeal’s Systems Network Advisor v4.1 and Vulnerability Advisor v4.1, for example, are near real-time risk management solutions that use network and vulnerability data to determine risk and provide prioritized remediation recommendations. RedSeal security packages allow organizations to assess and strengthen their cyber defenses. Unlike systems that detect attacks once they occur, RedSeal identifies holes in the security infrastructure that create risk – before they are discovered by hackers.
Casciano says organizations must utilize both types of continuous monitoring. The products in the first group (HP’s ArcSight and the Einstein Program) provide business with “tactical warnings and a snapshot in time of the activities within the IT enterprise” so that management can react to specific events. The second class of products (RedSeal and SCP) “exposes the strengths and weaknesses of the entire IT enterprise, identifies potential avenues of attack and enables management to take defensive actions well in advance of an attack,” Casciano notes.
Ultimately though, computer security products represent only half the solution. The other 50% is human element. Companies and their IT departments must construct strong computer security policies and procedures, disseminate them to the entire staff and employee population and enforce them. In an age where hackers’ ranks are swelling and successful penetrations are increasing, corporations would be wise to arm themselves with the continuous monitoring tools to thwart cyber terrorists.
Ask yourself: “What have you got to lose?”

Cisco identified five areas of growth that are crucial to its success. They include: routing, switching and services; video; collaboration and Web-conferencing offerings; data-center virtualization and cloud computing, which are technologies that help companies outsource and streamline computing operations; and architectures for business transformation.
Cisco also unveiled some management changes. Senior vice presidents Pankaj Patel and Padmasree Warrior—who is also Cisco’s chief technology officer—were named to co-lead Cisco’s engineering group.

What the Moves Mean

Cisco has grown rapidly in the past decade, in large part through a flurry of well timed and targeted acquisitions. Unlike HP and Oracle, which are known for gobbling up very large competitors, Cisco’s Chambers prefers to acquire small and midsized firms that can boost Cisco’s presence in a particular market arena. This strategy has served Cisco well. It’s issued far fewer pink slips to employees than either HP or Oracle who have cut tens of thousands of workers in the past several years as they’ve absorbed industry giants. At the same time though, Cisco’s stock has been stagnant. As of today Cisco’s stock is at $17.62 which is at the bottom of its 52-week range of $16.52 to $26.80. On the plus side its profit margin is still a healthy 17.89% and its operating margin is a robust 21%. However, return on assets is only 7%, although return on equity is a respectable 17.38%. Chambers has always been fiscally responsible and it shows in the balance sheet. Cisco has $40.23 billion in cash and just $15.24 billion in debt.

Cisco will report its fiscal third-quarter earnings report next week. Wall Street, investors and competitors will be watching closely. It is imperative that Cisco jumpstart its momentum in switches and routers and repel rivals. Cisco must also score a big win with its cloud initiative. It’s no secret that nearly all the top tier high tech vendors are aiming for a dominant position in this emerging market. Financial analysts are openly wondering how long Chambers can hold out before he’s forced to lower prices on Cisco’s networking gear. Cisco must also executive and defend its position in its stated five core product/technology priorities: switches and routers; cloud computing and data centers; “architectures” (network design) and video.
As we said at the beginning of this article, all of the executive personnel and product changes underscore increasingly cutthroat, competitive market conditions. To stand still and do nothing is to fall by the wayside and effectively be shut out of the race.

Changes are also afoot at Microsoft. In late January CEO Steve Ballmer announced the departure of 23 year veteran Bob Muglia who successfully ran the company’s very profitable Server and Tools business. Under Muglia’s direction, STB recorded a $1.63 billion operating profit on sales of $3.96 billion in the prior fiscal quarter. Muglia will leave sometime this summer. To date, Microsoft has been mum about his replacement and while the company isn’t saying anything publicly word inside the company is that Ballmer forced Muglia out to accelerate Microsoft’s cloud strategy.
Whether or not that’s the case, Ballmer should speed up the search for Muglia’s successor and plug the gaping holes left by other very visible departures. They include: Brad Brooks, a corporate vice president in the Windows consumer marketing group who left to work for Juniper Networks; Matt Miszewski, the general manager of Microsoft’s government business who is taking an executive post Salesforce.com and Johnny Chung Lee, the infamous Wii hacker who partnered with engineers in Microsoft’s Applied Sciences group to develop the Kinect for the Xbox 360. Lee is defecting to Google. Ouch! The Kinect motion camera has been an unqualified success for Microsoft. It sold eight million units in the first 60 day. Microsoft is also betting heavily on its Windows Phone 7, which has garnered generally positive reviews. Microsoft says it has sold over two million units to date but it isn’t clear how many of those units (which have been shipped to partners) have actually been sold. Microsoft will have to bring its “A” game to challenge Android-based smart phones, Apple’s iPhone 4 and RIM’s Blackberry.

For future reference though, Apple and all high tech vendors would do well to respond to these issues as they occur and not wait days or weeks.

Based on ITIC’s first person customer interviews, we determined that the biggest customer complaint was not with the inherent security of a specific server OS platform, but rather in finding fixes and getting technical service and support when the organization was stymied. In many of these particular instances, the organizations were very large enterprises and a common complaint was that searching for a fix was akin to finding “proverbial needle in a haystack.” Since the underlying reliability and security of nearly all the server operating systems and server hardware has improved, the majority of the more moderate and severe Tier 2 and Tier 3 outages are mainly due to integration and interoperability issues e.g., incompatible applications or drivers.

Conclusions and Recommendations
Server OS security is fluid and not static. No server operating system, application or hardware component is immune to penetration. Customer perception can and does change the minute a security flaw is found or malware is unleashed that successfully penetrates or threatens to compromise the security of any platform.
None of the server operating system vendors can rest on their laurels. Microsoft has made impressive security gains making Windows Server inherently secure by default, design and deployment, now it must endeavor to maintain the consistency of its security. Windows Server also has the biggest bull’s eye on its back since it is one of the most widely deployed server operating systems. Other server OS distributions, most notably Apple’s OS X 10.6x, which has so far managed to avoid falling prey to very major or public security holes, must likewise maintain its vigilance as the OS increases its presence in corporate enterprises.
Corporations also bear at least 50% of the responsibility for securing their respective environments. Even the most bulletproof server OS can be compromised and undone by configuration errors and failure to install and turn on OS security features. Organizations are also advised to conduct quarterly threat assessments of their environments. Staying current on the latest patches and fixes is also a must, as are regular updates of anti-virus applications and other security packages. Corporations should also review and update their security policies and procedures annually.
These results are especially important considered in light of the ongoing economic crunch which has caused companies to cut their IT budgets and reduce staff. As they strive to accomplish more with fewer resources, IT departments must rely even more heavily on their vendors to deliver more reliable and secure servers and server OS platforms.
Time is literally money. Even a few minutes of downtime – especially when a hack or a suspected security leak occurs — can result in significant costs and cause internal business operations to grind to a halt. Downtime as a result of a security breach can also undermine company’s relationship with its customers, business suppliers and partners. Reliability or lack thereof can potentially damage a company’s reputation and result in lost business.

Survey Methodology
ITIC conducted an independent Web-based survey of 470 corporate IT mangers and C-level executives worldwide from November 2010 through February 2011. The survey’s objective was to poll corporate customers on the reliability of 14 of the most popular server hardware platforms and 18 of the top server OS distributions.
The survey participants came from 23 countries worldwide; approximately 83% of the respondents hailed from North America. The survey consisted of multiple choice questions and one essay question. ITIC supplemented the Web survey two dozen first person customer interviews. In order to maintain objectivity, ITIC accepted no vendor sponsorship monies.
Nonetheless, downtime, regardless of the reason, still disrupts network operations, costs the corporation time and money and raises the risk of litigation. Additionally, any extended amount of downtime (and these days even a 15 or 20 minute outage can be classified as lengthy) will almost certainly cause service disruptions that can have a domino effect on business partners, customers and suppliers.
This underscores the importance of timely and efficient technical service and support, which can make the difference between minutes or hours of downtime. It is not hyperbole to state that technical service and support is one of the pillars – along with product features, performance, security and scalability — that solidifies or undermines the overall reliability of the network infrastructure.
Conclusions and Recommendations
Vendors’ ability to deliver top notch technical service and support – including a quick response with updates, fixes and patches to known flaws and security vulnerabilities – has a direct impact on overarching network reliability. Technical service and support – good and bad – also distinguishes and differentiates vendors from their competitors. How promptly, efficiently and courteously a vendor responds to its customers definitely plays a role in an organization’s planned purchases and upgrades.
Vendors who provide shoddy service, or have been inattentive to their customers’ requests for information on products and pricing or who fail to effectively respond in times of crisis, may find that such behavior backfires. A vendor that ignores its clients needs once the contract has been signed, may find themselves unable to upsell to those users or tossed out of the account completely when the contact expires. At the very least, such vendors can expect that service contract renewals will be imperiled.
Competition is fierce among hardware and server operating system vendors. Users have choices and they know it. In 21st Century networks, time is literally money. Fast action and superior service and support can save or cost a corporation thousands or even millions of dollars for every minute of downtime.