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IBM Puts a Dent in iSeries Hardware Prices

Analysis of News Events
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Last Tuesday, IBM announced that it was slashing stickers for many of its iSeries 8xx servers and their associated feature codes. The computer giant also cut prices for many upgrades from older iSeries 8xx models to current models and offered trade-in credits for AS/400 7xx owners that upgrade to selected iSeries 8xx servers.

The price reductions, which took effect immediately, touched nearly all iSeries servers in one way or another. Customers who are in the market for new iSeries gear will enjoy the following price breaks:

  • Discounts that range from 9% to 50% on iSeries 810 Enterprise Edition and High-Availability Offering models
  • Prices that are 22% to 33% lower for iSeries 870 Standard Edition, Enterprise Edition, and High-Availability Offering models
  • Reductions between 15% and 28% for the iSeries 890 Standard Edition, Enterprise Edition, and High-Availability Offering models
  • Capacity Backup versions of the iSeries 870 and 890 that cost 11% to 12% less
  • Memory card prices that are 40% to 70% lower for all 270 and 8xx models
  • Disk storage prices that are reduced by 20% to 30%
  • Reduced charges for permanently activating iSeries processors that run Linux

Positioning for POWER5

The announcement was clearly designed to bring the price/performance of the 8xx series in line with that of the POWER5-based models that IBM will start shipping near the end of the second quarter. (This shipping date was revealed by John Joyce, IBM's CFO, when he briefed analysts about the company's first quarter financial results on April 15.) By reducing prices, IBM hopes to keep customers buying 8xx servers while they wait for POWER5 models to leave the loading docks. That goal is important for Big Blue, as iSeries revenues for the first quarter were down 7% from what they were a year ago.

As the following table shows, IBM is discounting its current models rather heavily to keep the sales coming. Please note that in this table, all prices are in U.S. dollars. The list prices for the iSeries 870 and 890 are for systems with the minimum number of activated processors.

 

New List Prices for iSeries 8xx Models
Model
CPW Rating/
Processors
Edition/Offering
Old Price
New Price
Discount%
810-2465
750 CPW
1-way S Star
Enterprise Edition
$55,000
$50,000
9%    
High-Availability Offering
$40,000
$35,000
13%    
810-2466
1020 CPW
1-way S Star
Enterprise Edition
$78,000
$60,000
23%    
High-Availability Offering
$58,000
$40,000
31%    
810-2467
1470 CPW
1-way S Star
Enterprise Edition
$120,000
$80,000
33%    
High-Availability Offering
$100,000
$60,000
40%    
810-2469
2700 CPW
2-way S Star
Enterprise Edition
$199,000
$119,000
40%    
High-Availability Offering
$159,000
$79,000
50%    
870-2489
7700-11500 CPW
5/8-way POWER4
Standard Edition
$345,000
$230,000
33%    
Enterprise Edition
$765,000
$600,000
22%    
High-Availability Offering
$565,000
$400,000
29%    
870-2486
11500-20000 CPW
8/16-way POWER4
Standard Edition
$400,000
$310,000
23%    
Enterprise Edition
$1,230,000
$900,000
27%    
High-Availability Offering
$830,000
$600,000
28%    
870-2496
3200-20000 CPW
2/16-way POWER4
Capacity Backup Offering
$375,000
$330,000
12%    
890-2497
20000-29300 CPW
16/24-way POWER4
Standard Edition
$900,000
$750,000
17%    
Enterprise Edition
$1,970,000
$1,560,000
21%    
High-Availability Offering
$1,470,000
$1,060,000
28%    
890-2498
29300-37400 CPW
24/32-way POWER4
Standard Edition
$1,440,000
$1,230,000
15%    
Enterprise Edition
$2,550,000
$2,140,000
16%    
High-Availability Offering
$2,025,000
$1,615,000
20%    
890-2499
5600-37400 CPW
4/32-way POWER4
Capacity Backup Offering
$900,000
$800,000
11%    

As the table shows, IBM is offering particularly attractive discounts for the larger iSeries 810 models as well as for all High-Availability Offerings. These deeper discounts could partly reflect the prices that IBM anticipates it will charge for POWER5 servers with similar performance. Then again, they could also reflect the company's judgment of which 8xx servers it can sell most effectively during the transition to the POWER5 models. Whatever the motives may be, nobody in IBM is talking about them. With the company on the verge of announcing POWER5 models, iSeries managers are keeping their reasons close to their chests.

While IBM did not reduce prices for the iSeries 800, the 810 Standard Edition, or any Model 825, it did cut prices on memory cards for these and all other 270/8xx models. Owners of any AS/400 Model 270 or iSeries Model 800 or 810 get a 40% break on memory prices. Customers that buy memory for an iSeries 820, 825, or 830 will receive a hefty 70% discount. As for iSeries 840, 870, and 890 owners, they will enjoy a 60% price break. In addition, IBM cut prices for its 10,000-RPM disk drives (the 4318 and 4319) by 30% and for its 15,000-RPM drives (the 4326 and 4327) by 20%.

IBM also added a new wrinkle to the fees it charges for permanently activating standby processors on its iSeries 825, 870, and 890 models. While the company reduced the cost of such activations by $15,000 per processor, it added that $15,000 to the cost of the OS/400 license fee for each processor. This means that the cost to activate processors running OS/400 remains the same, but the cost to activate processors running Linux declines by $15,000.

Speaking of lower costs, IBM is also offering a credit to owners of AS/400 Models 720, 730, or 740 that trade in their servers for an iSeries 810 or 825. The credit ranges from $10,000 to $50,000 (U.S. dollars) depending on the 8xx processor purchased.

The Upgrade Conundrum

Since IBM reduced prices for many of its newer iSeries models, it also reduced prices for many of the upgrades to those same models. As a result, owners of most iSeries 820, 825, 830, and 840 models will find that upgrade paths to the 870 and 890 cost significantly less. However, owners of 820, 830, and 840 models that run lots of interactive workloads may find that they get little to no price break for an upgrade. For instance, owners of iSeries 820s that have the 1,050 or 2,000 interactive CPW feature codes will not get price breaks if they upgrade to a 5/8-way Model 870 Enterprise Edition.

For the moment, I am not going to drag you through a lengthy analysis of the upgrade options. Why? Because it is highly likely that in a matter of weeks IBM will announce upgrade paths from the 8xx series to the new POWER5 servers. Whenever that happens, customers will have to compare this week's prices for upgrades within the 8xx series to prices for upgrades to the POWER5 series. Until we have those prices, it will be impossible to determine the most cost-effective upgrade options. As such, I would advise you to wait until the next announcement shoe drops at IBM. While I am subject to an agreement that prohibits me from telling you when that will happen, I can say that it will be very soon.

Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at This email address is being protected from spambots. You need JavaScript enabled to view it..

LEE KROON
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology.
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