IT Budget Relief from High Hardware Maintenance Fees

June 13, 2011 Dan Burger

Certain companies thrive during a recession. Those that can tighten budgets, run leaner without killing productivity, actually put themselves in an advantageous position. Some try to do it with smoke and mirrors with short-term relief causing long-term pain. Sort of like deciding to save money by not paying the electric bill. That’s not a good long-term plan. But as you shine a light on the IT department, what about an option to reduce hardware maintenance charges? What can you do and how dangerous is it?

If your company fits in with the majority of IBM i shops–a small to midsize business getting a very nice return on investment on a small to midsize application and database server–there may not be a good reason to upgrade servers and operating systems. The more immediate and pressing issue is sorting out cost efficiencies that can be used to pay for the next upgrade. One of those cost saving measures might be found in hardware maintenance contracted through a third party.

Annual hardware maintenance on an IBM an older Power 520, for example, will typically range from $10,000 to $15,000. And unlike insurance premiums on your car that decrease as the car ages, an IBM hardware maintenance contract increases as the equipment gets older. It’s one of the sharp sticks IBM uses to move the herd forward and onto new boxes. The hardware maintenance on the Power7 boxes, by the way, is substantially discounted from what IBM i customers have come to expect, and IBM says it is helping sell the latest, greatest hardware. A third-party maintenance provider will likely shave off at least $1,000 to $1,500 from the above-mentioned estimate on a single server. If you have multiple servers, this adds up. Beyond servers, there are plenty of other hardware and infrastructure items that a third-party vendor can become involved with and the savings can therefore multiply.

In a conversation last week with Perry Mills, owner of iTech400, an IBM business partner in Tustin, California, Mills said he recently completed a proposal for a customer on a small Power7 machine that was priced at $700 per month for five years including hardware and software maintenance contracts.

Mills makes the comparison between that 23,500 CPW machine and a iSeries Model 810 or 820 from the early 2000s that requires an annual $10,000 to $12,000 hardware maintenance contract for a box with far less performance.

“You can pay $700 a month, sit back, and run the machine without worrying about squat,” he says. “On the other hand, there are people with old code. They already know it won’t work on i 6.1, let alone i 7.1. They sometimes choose to run without maintenance because their budget does not allow for $12,000 in hardware maintenance. I know some people like that.”

There has not been a great deal of effort put into exploring third-party maintenance providers. Among the reasons are a satisfaction in the current customer-vendor relationship, a hardware refresh cycle that corresponds with the expiration of the maintenance contract, and a suspicion that third-party vendors can’t provide the level of service of an OEM.

But that could be changing. Every executive wants his management team to be a pack of bloodhounds on the trail of cost effectiveness. Not coincidentally, every hardware and software company knows this and they have their marketing messages tuned to making cost effectiveness one of their product’s greatest attributes. At least with the IBM Power Systems (and its predecessors the System i, iSeries and AS/400) and the IBM i operating system (also OS/400 and i5/OS), you have a very stable enterprise-grade system that serves well beyond the three-year replacement cycle in many companies. Rethinking the replacement cycle and expanding it a year or two could easily gain favor. We’re becoming accustomed to seeing things change from the familiar ways of the past.

It’s important to have your bases covered on a third-party contract. Know that you have the same service levels, says Paul Goldberg, an IT hardware and services contractor in South Florida with expertise in hardware maintenance contracts. You have to ask for and get references from the third-party company that’s quoting you prices based on the services it will provide. References should be comparable to your company in terms of size and industry. Make sure that parts are stored locally, that the engineers/technicians are not subcontracted, and that they own the facilities end-to-end.

You can find companies specializing in third-party hardware maintenance that are local, regional, national, and international. Some cover multiple hardware vendors, while others focus on a single vendor. Some have customer portals that allow customers to log-in, view assets, make changes, add to and subtract from contracts as equipment is added or decommissioned. Some have the flexibility to vary the levels of service such as specified servers that only need “next business day” service and others that need 24×7 service.

“If you look at a medium size IT shop and you look at Intel servers, Power servers, storage, and networking that all requires maintenance contracts, and then add software maintenance to that, at the end the year there’s a lot of money spent on maintenance. It’s a serious part of your IT budget,” Goldberg notes.

Although some companies might be willing to roll the dice and go without a hardware maintenance contract, that would never be a recommended course of action. However, before your maintenance contract expires, it is wise to review your contracts and service level agreements and identify where costs can be reduced. A comparison of the current IBM contract, the next contract IBM is offering, and the cost of buying new hardware, is not providing the complete picture.