IBM will next month introduce a new low-cost, entry-level mainframe in a bid to capture the medium-sized business market and win customers away from rivals Sun, HP and Compaq.

Industry insiders believe this could be the most significant announcement the computing giant has made in the last 30 years.

The zSeries 800 (z800) has been born from the zSeries 900, formally known as S/390. IBM has taken the mainframe and its operating system, tweaked and re-packaged it, and cut the cost by almost 90 per cent in a bid to attract "new workload customers".

"We've done what we've said we'd do," said Doug Neilson, IBM eServer zSeries consultant. "We've taken the mainframe and extended it, enhanced it and put it into new markets."

According to IBM, the new z800 is particularly suited for use in web serving and ebusiness environments, or for running large applications such as SAP or Siebel. Neilson says IBM will also pitch the new offering at mid-sized organisations that are looking to consolidate their server farms.

"IBM is going to get very lucky with this," said Phil Payne, analyst with Isham Research. "I think it's the biggest thing they've done since virtual storage in the seventies."

According to Payne, the most significant part of the announcement is the new zOS.e operating system.

"They've taken the traditional zOS, removed the support for legacy applications and cut the price by 90 per cent," Payne explained.

"What you're left with is an operating system that supports new applications, is bomb-proof, and doesn't cost a great deal."

Payne explained that the robustness of the new operating system will be particularly appealing to new customers in a climate when security is at the top of many organisation's lists of priorities.

Generally available at the end of March, the z800 will be offered in one or four-way systems and can operate as part of a Parallel Sysplex cluster. It can also be upgraded to the z900, should an organisation outgrow the z800, and comes in an optional Linux-only version, which brings the price down further.

The advent of the z800 will see IBM competing head on with Sun Microsystems' traditional market. However, Sun says it is not worried.

"This seems to me like desperation from the mainframe team to take market share," said Mark Lewis, datacentre product marketing manager at Sun UK.

"It's going to attract interest from their [IBM's] installed base which will end up taking away market share from other areas of the business."

The z800 will be primarily sold via IBM's network of business partners. Bob Wilkie, zSeries country manager at IBM business partner CSF Solutions, said: "We're very excited about the z800, because it addresses the needs of the smaller mainframe.

"The way the mainframe has turned around in the past couple of years means this opens up a whole load of new customers who can take advantage of this technology."

Pricing will be announced at the end of March.