Another Power Systems Deal, and Some Feedback

November 9, 2009 Timothy Prickett Morgan

I have been a bit surprised by the lack of public wheeling and dealing in this economic downturn as far as server sales go. There has been no “cash for clunkers” equivalent deal that IBM has used to try to get companies to move ahead. Perhaps there are deals going on behind the scenes, on a one-on-one basis, but this takes time and is an inefficient way of selling because sales reps and channel partners end up doing what they want to move gear.

For all I know, IBM is so content with the price/performance of the Power Systems line, and its current profitability, that it doesn’t have to do big deals. The Power Systems line has been gaining revenue market share in a rising market over the past several years, and is gaining share even faster against competitors during the economic downturn. You don’t have to cut prices to compete against Sun Microsystems; all you have to do is point to Sun’s financials and the confusion that the $7.4 billion and still pending acquisition of Sun by Oracle is causing; it is not hard for Power6 boxes to compete against Hewlett-Packard‘s Itanium-based servers, and if someone brings up the very powerful and relatively inexpensive ProLiant x64-based servers, you can always change the subject. Presumably Big Blue’s top execs in the Power Systems organization are compensated at least in part on market share gains. So you can bet they are not inclined to cut prices formally, even if IBM could make up more business in volume. (At least potentially. Making it up in volume is a bad strategy sometimes.) Maybe IBM is just as happy to make its own deals at the top several thousand Power Systems accounts and let the channel take price cuts out of their piece of the action.

As The Four Hundred reported last week, IBM is offering pretty substantial discounts, ranging from 30 percent to 60 percent, to customers who activate the latent processor cores in selected models in the System i, System p, and Power Systems machinery using Power5, Power5+, and Power6 cores using Capacity Upgrade on Demand (CUoD) activation codes.

Our AS/400-i system administrator in residence, Joe Hertvik, had this to say about the deal:

Nice article on the topic of the CUoD discounts from IBM. The only problem I see is that this discount is really the best deal for people who are using the System i machines as servers rather than for interactive/batch workload. There’s also an issue with the types of machines they are talking about. Here’s the situation for a lot of System i shops, at least the way I see it.

Adding another processor to your machine in an enterprise environment really requires two things:

A processor activation that can cost somewhere below $5K without discounts
An i5/OS license for the processor that can cost somewhere between $40K and $50K

(Note: Numbers not exact, but I’m in the neighborhood.)

Now, if I’m trying to add capacity to a native i5/OS environment, it doesn’t matter that much if I’m able to get a $1,500 discount on the processor when I still have to shell out $40K+ for the i5/OS license. IBM is still getting the better of me when you factor the two in together.

I was looking through the offer and it doesn’t seem as if they touch on the topic of i5/OS software licenses anywhere, which makes this much less of a deal than I thought. Tell me if I’m missing something, but I really don’t see any mention of software licensing. All of which has an enormous effect on people using their System i machines for ERP software, such as ERP LX, JDE, or another flavor.

Also, what’s with IBM only offering this discount with two-way 550 and 570 models? Who buys a 570 with just two processors? Remember that IBM used to offer a 525 with two processors so a lot of people bought that instead of the two-way 550. And while I don’t have any info to back this up, I would guess that most i550 owners have a two-way machine that they haven’t activated all the processors on yet. So from my humble perch, this makes it even less of a deal. And wasn’t the point of the 570 that you could consolidate a bunch of other AS/400s into one machine, which is harder to do if you only have two processors, so I wonder how many people bought the two-way 570?

If you use this info, be sure to double-check me, but this doesn’t seem like that big of a deal to me for shops who: a) have two-way 550s or 570s, or b) need to use i5/OS to do their regular business processing.

Just my .02

–Joe

Hey, Joe:

You’re absolutely right about the impact of software licensing on the cores. The software costs absolutely dwarf the hardware discounts. And it is a wonder that IBM is not offering discounts on i 6.1 activations along with this.

I am not an engineer at IBM, but I believe the two-ways mentioned in the deal are two-way processor cards, not two-way systems. You add multiple cards to a box to scale the machine up. So, for instance, on the original 570 machines, you can have 16 processor cores spread across four boxes that are lashed together, with two processor cards per box and each processor card having a single dual-core Power5, Power5+, or Power6 chip.

–TPM

Now, on to the latest Power Systems deal from Big Blue. Last week, in announcement letter 309-577, IBM put a little more sugar on top of Power 570 and 595 deals with an extended warranty services deal. Under that deal, customers who buy Power 570 servers with a minimum of eight 4.2 GHz, 4.4 GHz, or 5 GHz Power6+ cores activated or shops that buy a Power 595 box with at least sixteen of the 4.2 GHz or 5 GHz Power6 engines activated will get an extra year of extended warranty services on the overall configuration for free.

IBM did not specify what these extended warranty services cost, so it is hard to reckon if this is a good deal or not. What the deal does do, however, is preserve top-line Power 570 and 595 revenues while giving the Global Services revenue stream a bit of a haircut.

To take part in this deal, customers have to install the new Power 570 or 595 gear by December 13. Activating cores using CUoD features on existing Power 570 and 595 boxes does not qualify customers to the free extended warranty, and neither does buying a Capacity BackUp (CBU) high availability box.

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