DRAM Companies in Taiwan, Energy Star in 2009, The Cloud and The Economic Crisis and More

This issue of Trendlines from the 1/1/09 Issue of CIO Magazine covers DRAM companies in Taiwan, Energy Star in 2009, The Cloud and The Economic Crisis and More

The Repo Man Cometh

If a car owner doesn't pay back his auto loan, the repo man usually arrives to take back the vehicle. But what if a company defaults on a loan for a multimillion-dollar SAP ERP software purchase? Or if it can't repay IBM Global Financing for the hardware, software and services that it bought two quarters ago? Does a repo man sneak into the data center and take back the servers?

As it turns out, hardware isn't that different from a 2008 Toyota Camry: It can be "repo'ed," refurbished and resold by the vendor. "We can take back equipment," says Fred Clarke, media relations manager for IBM Global Financing. "We can refurbish and resell them on IBM.com or through a broker network and really recapture the residual value on that equipment."

Tech vendors offering their own financing, such as IBM and Oracle, and those that rely on financing partners, such as Microsoft, may soon start to see red ink associated with their customer financing deals. Defaults on technology loans, which help customers purchase computers, software and other tech gear, have spiked this year, according to The Wall Street Journal. So repossessions are a possibility.

IBM's Global Financing resells any gear that is repossessed because a customer defaults and "we can't work out a deal," Clarke says. IBM employees or third-party partners will physically take back the equipment, load it on trucks and bring it to one of IBM's 22 refurbishment centers.

Software, though, is not as tangible as a mainframe: It cannot be resold and has no collateral value. "Software is pretty much a loan," says Clarke. "There's nothing you can do with software once you've taken possession of it."

For software vendors, the repo recourse is of negligible value. Microsoft and its financing partners have few options to recoup a loss. So while the relationship with Microsoft will surely sour, the customer still has the usable software.

Clarke admits that retrieving the IBM software bundled in a "solutions" deal is a bit riskier than handling the hardware loans, but "we adjust for that risk based on the interest rates we charge." He stresses that IBM has "a very conservative approach to lending. " IBM Global Financing's default rate, according to its third-quarter earnings report, increased from 1.1 percent to 1.3 percent.

Forrester Research VP and principal analyst Ray Wang says technology loan defaults historically haven't been a big problem for vendors that offer financing options. Clarke says that "this is not an everyday occurrence for IBM."

In fact, IBM's Clarke says the financing division has seen an uptick in customer inquiries about financing options. "We are being more prudent in how we're lending, and we are definitely looking at credit quality of the customer set, which is something that we've always done," he says. "But we have money to lend."

-Thomas Wailgum

Taiwan Hopes to Avoid Chipmaker Bailout

The Taiwanese government stands ready to help its ailing DRAM chips industry but hopes to avoid U.S.-style capital injections.

"The plight of the DRAM industry is known to the government and we are taking effective measures to help," said Taiwan's President Ma Ying-jeou during a press conference last month. "We will be very careful about doing the kind of capital injection the U.S. is doing."

The U.S. government injected cash into major banks such as Citigroup and Morgan Stanley to help them survive the economic downturn. Since starting that plan, U.S. automakers and others have asked for help.

In Taiwan, the global financial crisis has most hurt DRAM companies. The island's makers of dynamic random access memory chips started losing money last year when a chip glut sent prices plunging. The worldwide slowdown exacerbated their woes by making it harder to obtain loans and now threatens the global PC market, where most DRAM chips are used. Taiwan's industry accounts for a quarter of the global DRAM supply.

Taiwanese officials have talked about offering loans to or making capital injections in the chip makers through the island's National Development Fund in recent weeks. No consensus has been reached.

There's much at stake: Taiwanese banks loaned DRAM makers around $12.6 billion, according to Taiwan's economics ministry. "We understand very well how much weight the DRAM industry carries in Taiwan," Ma says. "Their fall would not only affect the IT industry but also our banking system as well."

-Dan Nystedt

Energy Star Coming to Servers in February

Looking for a server? Keep your eye out for the blue-and-white Energy Star label. The U.S. Environmental Protection Agency (EPA) has released a third draft of its Energy Star specification for servers and expects the final spec to be ready for use in February.

The specification aims to help customers identify the most power-efficient servers when making purchases. The Energy Star program already covers desktop PCs, monitors, light bulbs and other products. Products are identified with an Energy Star label.

The third draft establishes power consumption limits for when a server is in an idle state. To qualify for the Energy Star logo, vendors must also meet minimum requirements for power supply efficiency and publish a data sheet for each server indicating its power and performance levels for maximum, minimum and typical configurations.

The Energy Star specification covers servers with up to four processor sockets. The EPA excluded blade systems from the draft because the Standard Performance Evaluation Corp., a nonprofit that establishes benchmarks for high performance computers, indicated that its benchmark for measuring idle consumption can't run on blades. Future specifications will "look for appropriate ways to address blade systems," the EPA draft says.

The specification takes effect on Feb. 1. The idle power limits have been set at 60 watts for one-socket systems and 271 watts for four-socket systems. Additional components are given an additional power allowance. For example, a second hard drive gets an additional 15 watts of power.

-Agam Shah

Crisis Helps the Cloud to Rise

The economic crisis may have a silver lining for IT companies that invest in cloud computing, as it will contribute to significant growth in that sector, according to research firm IDC.

Based on a survey of IT executives, CIOs and other business leaders, IDC (a sister company to CIO magazine) expects spending on IT cloud services to reach $42 billion by 2012growth bolstered in part by the worldwide economic crisis.

"The cloud model offers a much cheaper way for businesses to acquire and use IT. In an economic downturn, the appeal of that cost advantage will be greatly magnified," says Frank Gens, senior vice president and chief analyst at IDC. "This advantage is especially important for small and medium businesses."

Aside from the economic crisis, three market forces are driving the shift to cloud computing and services, according to IDC. First is the search for growth and revenue in emerging markets in Brazil, Russia, India and China, as well as in the small and midsize business sector. Other factors are the shortcomings of traditional approaches in helping these markets increase IT revenue and competitive pressures from new players promoting the cloud-based business and IT model.

IDC differentiates between cloud services and cloud computing and is reporting sharp growth in both areas. It defines cloud services as both business and consumer services that people use over the Internet, and cloud computing as an emerging IT development, deployment and delivery model that enables real-time delivery of products and services over the Internet.

Cloud computing will capture 25 percent of IT spending growth in 2012 and nearly a third of growth in 2013, IDC predicts. By 2012, almost 10 percent of customer spending on IT will be on cloud offerings, including software as a service and cloud storage. While the definition for cloud services does include Web-based services from Google, Amazon.com and eBay, among others, it also includes any Web-based services that other companies will offer to engage easily with customers and partners, Gens says.

This in turn will spur growth in cloud computing, since these services need highly scalable, affordable and flexible IT infrastructure to support them, Gens says.

-Elizabeth Montalbano

CTO Role Becomes Broader, More Strategic

The chief technology officer role has evolved from one narrowly focused on engineering into one with broader, more strategic responsibilities, according to the CTOs of two major IT companies.

CTOs once were limited to engineering and research responsibilities, highly focused on technical issues, without much influence on broader business strategies. That, however, has been changing over the past 10 years, say CTOs.

Cisco CTO Padmasree Warrior's job includes traveling to many foreign countries to meet with clients and government policy makers to understand their technology needs and concerns. She also is tasked with identifying and analyzing new technology trends, industry changes and market transitions, and communicating her findings and conclusions to other Cisco executives and managers.

"My role is more now about thinking broadly across solutions," she said during a session at the Web 2.0 Summit in November.

She works closely as an advisor to Cisco's historically active M&A (mergers and acquisitions) group regarding what companies are truly innovating in areas that are important to Cisco.

Fellow CTO Shane Robison told a similar story about his role at Hewlett-Packard. "If I had to capture it in a word, I'd say strategy,'" Robison says. He and his team of business-unit CTOs look out for major technology and business trends. "[We then] develop a context in which we can make business decisions about where to invest and where to place our bets going forward," he says. This involves factoring in business, technology and market strategies, Robison adds.

The business unit CTOs relay those conclusions to the unit managers, who use them as a primary factor in HP's decision-making process for plans in areas such as business, product development and marketing.

-Juan Carlos Pérez

Copyright © 2008 IDG Communications, Inc.

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