IBM Wheels And Deals To Boost Power System Sales

May 7, 2018 Timothy Prickett Morgan

A lot of the revenue that comes to the Power Systems division – and perhaps the bulk of it if history and the changed nature of the product line is any guide – comes from relatively big iron machines, at least by IBM i standards for what is little, middle, and big iron. And IBM needs to do something here in early 2018 to keep customers of big iron boxes investing while it prepares to ship machines with four sockets or more of the Power9 processors under a schedule that we told you about back in February and that seems to be holding.

Our philosophy has always been that the big customers pay higher premiums for compute and memory scalability within a single system image, and this pays for a lot of the research and development to keep the line going. The smaller machines keep customers using IBM i, AIX, and now Linux happy and also represent the volume ramp of the chips that are coming out of the GlobalFoundries chip factories. If IBM only made chips for its big iron machines, which tend to push the limits of core counts and clock speeds, it would still be throwing away a whole lot of Power9 chips cut from the wafers, and it just makes sense to use these in entry boxes that give Intel’s “Skylake” Xeon and other processors a little hell. The more customers IBM has for Power9, the safer the product line’s future will be and the more parts will get used and therefore the less waste. IBM almost has to do little iron to make big iron worth it, or vice versa. The only server where this is not the case is the System z mainframe, where all of the customers have fairly capacious systems by mainframe standards – certainly not the 10,000 node to 50,000 node distributed systems employed by hyperscalers to do their data analytics applications and ad serving, but probably costing about the same to deliver the extremely high uptime for extreme transaction processing.

To each machine, its purpose. But any large-scale computing complex it going to cost many millions of dollars to create and maintain, especially if you burden the comparison with all of the ancillary costs. Think about how many PhDs it takes at Google to create its disparate homegrown software stack. No way is this cheap.

IBM has gotten the “ZZ” scale-out systems to market as of the end of March, which in onesies and twosies are like baby mainframes for IBM i shops, but it has to do something to keep the big Power8 iron it still has in the barn moving until the new “Zeppelin” four socket and “Fleetwood” 16 socket systems come to market in the third quarter of this year. To that end, IBM and its master distributors have put together a Q2 Large Deal Incentive to encourage business partners to push a little harder to, as the promotion we have heard about puts it, to get “over the line with Power9.”

The deal, which is not one that customers get but one that business partners get and therefore customers should know about, has a scale to the incentives that is based on when a deal closes and how big of a deal that it is. It does not seem to limit the deal to only large machines, but it certainly could be applied to large machines. It looks like it could also be applied to a large number of smaller machines, at least to our interpretation of what we have heard. The key thing is that IBM wants to book revenue in the second quarter for Power Systems, whether it is Power8 or Power9, and given the size of the deals that IBM is incenting, it seems likely that it is really designed to help push relatively big boxes.

In any event, under the Q2 Large Deal Incentive, partners who close a deal with more than $550,000 in Power Systems hardware revenue but less than $1.1 million in revenue will receive a $20,000 incentive through their master distributors if the deal closes in April, $15,000 if it closes in May, and $10,000 if it closes by June. If the deal is $1.1 million and over for Power Systems iron, then the incentive is $35,000 in April, $25,000 in May, and $15,000 in June. And if any deal has one or more Power Systems machines running Linux, then the distributors downstream from IBM will grant resellers an additional $5,000, regardless of the month the deal goes down. Given the size of the deals, this is not much, but given the average salary of salespeople at Power Systems resellers, who stand to get at least some of that benefit, then it is pretty good. This deal is not so much about making end users a good deal as it is motivating end users to spend money they might not anyway. On Power8 iron, this is going to take a certain amount of discounting for sure, just given that the iron is four years old.

IBM is also trying to push the SAP HANA in-memory database on Power Systems iron, and between January 1 and June 30, it has a deal to provide system integrators and solution providers bonuses if they push HANA on Power. Under this HANA promotion, the machine has to be sold to a real end user using HANA in production, not a solution provider or other IT company that is using it to create software or sell services; the machine cannot be sold to government agencies, either, for some reason. The amount of the incentive scales like this:

For Power Systems revenues of $25,000 or greater, you get $2,500; for deals that are for $50,000 or more, you add on another $3,500; deals that are worth $100,000 or more, add another $5,000; and for deals worth $250,000 or more, tack on another $10,000. That can add up to $21,000 in incentives, or about 8.4 percent of the deal value for Power Systems hardware sold. This is a pretty good chunk of margin.

Just for reference sake, here is a list of all of the end user deals from business partners and directly from Big Blue that are open for Power Systems iron:

Many of these deals have been around for a year or more, some we have never heard of. All of these are available in the United States, some are available in Canada as well as far as we know. We do not know if they are available on other geographies, but if not, they probably should be. This is one world, after all.

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