Last Wednesday, IBM surprised the midrange community with a little present: incredibly deep discounts on two iSeries servers that will likely fit the needs of many customers. As you will see, the computer giant has good reasons for being so generous.
The discounts, which IBM announced under the code name "GreenStreak," give customers a hefty 50% break on the purchase price of two iSeries server configurations and all the hardware feature codes they purchase for the servers. The two servers are the iSeries 270-2432 with interactive feature code 1519 (50 CPWs of interactive performance) and the iSeries 820-2436 with interactive feature code 1522 (70 CPWs). Customers can get these discounts if they order by December 13, 2002, and install their servers by December 31, 2002. Selected model upgrades from iSeries 270, 720, and 820 models to these two configurations also qualify for the same discount.
In addition, customers can receive a 38% or 32% discount on selected iSeries software and Software Subscription charges that they order with the purchase or upgrade. Customers who install the software by September 30, 2002, get the 38% discount; customers who install the software by December 31, 2002, get the 32% price break.
If one looks a little closer at this offer, it becomes clear that IBM is, in effect, giving customers their interactive capacity for free or for a nominal price. Let's consider the price break on the iSeries 270 first. By my calculations, a 270-2432 with interactive feature code 1519 normally costs $47,776. (This is the cost for a minimally operational machine, not the lower cost that IBM quotes for a base configuration that may not IPL when powered up.) Under GreenStreak, that price gets slashed to $23,888. By contrast, the same 270-2432 with no interactive CPWs costs $15,476. That's still $8,412 less than the newly discounted configuration. However, when you consider the fact that GreenStreak also provides 50% off on additional feature codes and 32-38% off on selected software, it's likely that you will save that $8,412 on the added bells and whistles.
An analysis of the iSeries 820-1522 yields a similar scenario. Normally, a minimally operational configuration would cost $124,900, which plummets to $62,450 under GreenStreak. By contrast, the same iSeries without the 70 CPWs of interactive capacity costs $39,900. That's $22,550 less, but many customers will save that much on the discounts to additional hardware features and software.
Besides saving money on purchase prices, customers who replace older AS/400s with GreenStreak servers could reduce their operational costs. Many of these older systems impose higher monthly costs than newer iSeries models for hardware maintenance, power, cooling, and software licenses. Over the course of three to five years, these savings could actually pay for a new server. In the coming weeks, IBM will likely post some cost-of-ownership scenarios that demonstrate such savings at its newly launched GreenStreak Web site.
Why is IBM offering customers such a great deal on these servers? If you consider what's been happening in the market lately, you can find at least five good reasons.
- The first and most obvious reason is that customers have been demanding price breaks on interactive feature codes for years. With GreenStreak, IBM is responding to these demands and waiting to see if an increase in purchases offsets the per-unit revenue losses.
- The second reason is that, frankly, the iSeries Brand is hurting financially and has to boost sales. On the same day that the GreenStreak announcement hit the street, IBM announced that for the second quarter, its revenues declined 6%. Most of this decline was due to hardware sales, which plummeted 16%. Preliminary reports indicate that iSeries sales fell even further. Of course, the iSeries Brand knew that its numbers would be terrible long before this and that it had to do something to boost sales. One of the best ways to do that is to make an attractive offer to the huge installed base of low-end AS/400 customers who need interactive capacity and who could benefit from a new iSeries but have refused to upgrade because of the price. GreenStreak will appeal to these customers because it heavily discounts two uniprocessors that offer a little more capacity than most older AS/400s but aren't overkill in the price or performance departments.
- Third, IBM would like price-conscious customers to consider purchasing a new iSeries instead of a used AS/400. As my colleague Tom Stockwell explained in his article last week, used AS/400 prices have been falling steadily in recent months. This announcement gives IBM a better chance of winning accounts that might find those used prices attractive.
- Fourth, IBM needs to give entry-level customers a reason to buy current models now rather than wait until next year for a low-end POWER4 iSeries. As you might remember from my article earlier this month, IBM has already released an entry-level POWER4 server in the pSeries family. Since IBM will likely hold off on an iSeries version of this server until early 2003, it needs to discount the models that this server will replace to keep already meager order levels from falling further.
- Finally, there's undoubtedly someone in IBM who wants to take away the incentive for customers to use the highly controversial FAST400 software utility. In case you haven't heard of this program, FAST400 effectively overrides the mechanisms in OS/400 that prevent users from getting interactive capacity from their servers unless they purchase interactive feature codes. At a cost of $1,000 per processor per year, it's a steal (and IBM would call it that) compared to buying the feature codes.
With GreenStreak, IBM manages to kill (or at least maim) these five birds with one stone. If it succeeds in doing so and customers respond enthusiastically with more orders, there's a good chance that the computer giant will take further steps to keep interactive pricing attractive next year.