Whaaa? IBM Gets Stingier with Power Systems Deals

November 29, 2010 Timothy Prickett Morgan

We are in the heart of the fourth quarter with questionable stats in the Western economies and very good growth in the emerging markets in China, India, Russia, Brazil, and a handful of other countries. With Power Systems revenue on the decline year-on-year, and against a pretty easy compare mind you, I would expect that IBM would be out there wheeling and dealing to crank up Power Systems sales. But thus far, Big Blue is behaving like it thinks it has its pricing right–or perhaps like it was a bit too aggressive on the pricing with this year’s Power7 iron, in fact.

You heard that right.

IBM is tweaking things here and there in some deals to make me believe this. On November 16, in announcement letter 310-288, IBM added the Power 795 to a long-running trade-in deal for Power 595 machines that was last updated a year ago in November 2009 when we all knew Power7 machines were on the horizon. At the time, it became apparent that IBM was not going to get its high-end Power 795 into the field until the summer or fall of this year, and that left the company trying to give trade-in credits to customers buying Power6-based Power 595 iron. Trade-in credits on the November 2009 deal (in announcement letter 309-576) gave customers who were trading in older IBM Power iron as well as competitive Unix and proprietary boxes from Hewlett-Packard, Fujitsu, and Oracle trade-in credits that ranged from $25,000 to $200,000 on Power 595 machines using 4.2 GHz Power6 chips and from $30,000 to $240,000 on machines using 5 GHz chips. The trade-in varies depending on how many cores you activate–the more you buy, the larger the trade-in.

With this iteration of the trade-in deal, the Power 795 is added to the mix alongside older Power 595 gear and the trade-ins are a lot less generous for both new and old iron. On the Power 595 machines in the latest version of the deal, the 4.2 GHz boxes only get trade-ins that range from $7,000 to $37,000 and the 5 GHz boxes only get from $10,000 to $100,000. Interestingly, the trade-in credits for customers who go for 4 GHz Power7 processors range from a low of $5,000 on a machine with between six to 31 cores activated to $120,000 for a machine with all 256 cores in a maxed out machine activated. IBM had been roughly holding the price of a high-end Power System machine steady while doubling performance in the move from Power6 to Power7 machines, but the trade-in offers only half as much dough per core.

That would seem to indicate that IBM regrets setting Power7 system prices at the high end as aggressively as it did. But then again, for such big systems, these trade-in deals are the start of a conversation, not the final discount a customer can get. Particularly if it is a takeout deal that involves converting an HP, Fujitsu, or Oracle shop to IBM Power Systems.

To take part in the deal, IBM assigns what it considers a fair market value plus an additional monetary incentive to the box you are getting rid of. These takeouts look pretty stingy to me, considering what these machines cost, but there is not as vibrant a market for second-hand equipment as there was a decade ago so it is hard to say how stingy.

One other thing, and I have complained about this before. On this revised IBM Power 595 and 795 Server Trade-In Program, prior generations of System i and Power Systems iron running i5/OS or IBM i operating systems are not included. Which is perfectly asinine, and shops using older i boxes should behave like they are part of the deal. We are all one big, happy Power Systems family, after all, right?

On a second deal that was modified last week in announcement letter 310-290, older AS/400, iSeries, and System i servers are included as takeout machines alongside gear from Unix and proprietary HP, Fujitsu, and Oracle gear. The long-running deal is now called the Power Express Server Trade-In Program, and now includes the entry Power 710, 720, 730, and 740 Express servers as well as the Power 750 Express machines that were added to this deal back in June. In this case, the trade-in credits did not change on prior-generation Power 520, 550, 560 machines and the Power 750s announced in the spring. Credits range from $1,000 to $1,750 on Power 520s, from $2,000 to $9,000 on Power 550s, and from $3,000 to $10,000 on Power 560s. That didn’t change, and IBM didn’t knock off the Power 5XX entry and midrange boxes from this deal just like it didn’t kill off the Power 595 in the above-mentioned deal. (This likely means there is some Power6+ gear in the barn at Big Blue and its reseller channel partners that the company is trying to move.)

The interesting bit to me is how stingy the trade-ins are on the entry Power7-based machines that were added to this second deal. On the Power 710 Express setup, IBM is giving a trade-in credit that ranges from $500 to $1,200, depending on the system configuration, and from $200 to $1,500 on Power 720 Express. The Power 730 Express machines you might buy have a trade-in credit ranging from $1,300 to $3,000. These entry servers with two processor cards have faster and more expensive Power7 chips, hence the better trade-in credits. The Power 740 machine, also a two-card box sporting faster chips, has a trade-in credit that ranges from $500 to $3,500. Generally speaking, on a performance-for-performance basis, the trade-in credits on the newer entry Power7 machines are less generous than the credits being given on older Power 520, 550, and 560 iron.

This seems contrary to me, unless IBM is regretting setting its prices so aggressively against some pretty compelling Xeon and Opteron servers down there in the entry and midrange part of the field. To raise prices would cause an uproar as well as causing it to redistribute its literature, but to be a little less generous on trade-ins for newer gear (which people will want) is one way of goosing Power Systems revenue a bit. In theory, at least. Practice out there in the midrange is a whole lot more messy than theory up in Somers, New York, where these decisions are made.

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