Feb. 26 (Bloomberg) -- International Business Machines Corp. introduced a mainframe computer that performs tasks more quickly while using less power, stepping up competition with Hewlett-Packard Co. and Dell Inc. for business customers.

The computer can operate 50 percent faster, handling 70 percent more work, than current IBM mainframes, the Armonk, New York-based company said today in a statement. That reduces energy costs by as much as 85 percent, the company said.

IBM, the biggest seller of mainframes, is redesigning the machines to better challenge server networks, which can cheaply deliver Web pages and computer files. With new software for managing online sales and financial transactions, IBM aims to revive sales of a technology invented decades ago.

``The mainframe was viewed as legacy technology, but now it's consolidating new application workloads once handled by networks of smaller computers,'' said Brad Day, a senior analyst at Forrester Research Inc.

IBM invested $1.5 billion developing the new computer, Mark Anzani, a vice president responsible for mainframe development, said in a telephone interview. It's the company's first new mainframe since July 2005. Prices start at less than $1 million, depending on the configuration.

IBM gained $4.30, or 3.9 percent, to $114.38 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 5.8 percent this year.

Millions of Users

The mainframe, called the z10, allows businesses to better share, track and automate information among millions of users, IBM said. The machine has the capacity of almost 1,500 standard servers, while using 85 percent less power.

The z10, available now, uses as many as 64 so-called quad- core processors. That means there are four processors on each piece of silicon. IBM's last mainframe, the z9, had 54 dual-core processors.

IBM is targeting companies ``that may not have done a lot with mainframes in the past,'' along with existing customers, said Steve Mills, head of the company's software unit, in an interview on Bloomberg Television.

IBM mainframe revenue slipped 15 percent in the fourth quarter, after dropping 31 percent a quarter earlier, as customers waited for the new model. That contributed to a 3 percent drop in hardware sales last year to $21.3 billion, even as total revenue increased 8 percent to $98.8 billion.

Sales Contributor

Mainframe sales produced about 25 percent of total revenue, counting linked software, services and financing, according to Mills.

IBM's hardware gross profit margin, the percentage of sales left after deducting production costs, was 45.7 percent last quarter. That topped the margin of the company's services business.

``There's no singular product that's as important to IBM as the mainframe,'' said Louis Miscioscia, an analyst at Cowen & Co. in New York. ``It's a high-margin product.''

IBM introduced its current mainframe design 40 years ago, updating it every few years. The computers perform heavy-duty processing, including financial transactions. The company remains the dominant mainframe maker, winning about 80 percent of sales in the past two years, according to research firm Gartner Inc.

Still, the rise of servers has eaten into mainframe sales. Worldwide server revenue increased 3.8 percent to $54.8 billion last year, while mainframe sales declined 12 percent to $5.98 billion, according to Stamford, Connecticut-based Gartner.

While IBM also offers servers, it's losing sales in that market to Hewlett-Packard and Dell.

The new mainframe may give IBM an edge, Anzani said.

``This platform isn't for every type of workload,'' he said. ``But as some of the work done today in the H-P or Dell environment becomes more complicated, and there's a need to become more simplified, the new mainframe becomes more competitive from a pure performance and economics standpoint.''

To contact the reporter on this story: Matthew R. Miller in Atlanta at mmiller31@bloomberg.net

Last Updated: February 26, 2008 16:26 EST