Used IBM iSeries Equipment: Buyer's Market or Market Free Fall?

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According to ITParade.com's most recent analysis, the going rate for previously owned iSeries and AS/400 equipment through the month of September continues to drop precipitously, down 26% on average since May 2002.

ITParade.com is a dealer network composed of hundreds of IT equipment remarketers that specialize in refurbished computer and networking hardware. Each month, it surveys the marketplace to determine the value of used equipment in the IT marketplace. It publishes its quotations for used IT equipment as a service to its dealers and potential buyers.

"Slow Market" Statistics: The Three-Month Trend

According Robert Davie, founder of ITParade.com, "Pricing has come down again, significantly. The iSeries market is slow. It continues to be a buyer's market."

How significant is "significantly"? Let's look at some specific numbers that ITParade.com has tallied over the last several months.

Averages
July '02
Aug '02
Sept '02
Change
Model 170
$10,300
$10,300
$8,422
-18%
Model 300
$1,467
$1,467
$1,467
0%
Model 310
$1,300
$1,300
$1,300
0%
Model 320
$1,300
$1,300
$1,300
0%
Model 400
$1,688
$1,688
$1,538
-9%
Model 500
$1,300
$1,300
$1,300
0%
Model 510
$2,000
$2,000
$2,000
0%
Model 530
$7,960
$7,960
$6,180
-22%
Model 600
$6,925
$6,925
$2,950
-57%
Model 620
$4,283
$4,283
$3,300
-23%
Model 640
$18,333
$18,333
$8,300
-55%
Model 720
$41,592
$41,592
$38,067
-8%
Model 730
$100,111
$100,111
$93,389
-7%
Model 9406
$5,950
$5,950
$5,950
0%
Average
$14,608
$14,608
$12,533
-14%

According to ITParade.com's figures, the largest drop in pricing between July and August came for the medium-sized models, including Models 530 (down 22%), 600 (down 57%), 620 (down 23%), and 640 (down 55%). Less volatile were the 700 series, with an average drop of about 7.5%. On the low end of the iSeries model number series, the Model 170 lost about 18% of its market value over the last three months. (The numbers above reflect the average price of each model with various feature codes and operating system levels.)

Based on this three-month rolling average, it appears that the iSeries used equipment market is down by only 14% since July. However, if we combine these averages with the chart below that shows the rolling averages over six months, a more substantial trend becomes somewhat alarming.

Rolling Six Month Averages Cause Concern


May '02
June '02
July '02
Aug '02
Sept '02

Model 170
$11,189
$10,967
$10,300
$10,300
$8,422
-25%
Model 300
$1,467
$1,467
$1,467
$1,467
$1,467
0%
Model 310
$1,300
$1,300
$1,300
$1,300
$1,300
0%
Model 320
$1,300
$1,300
$1,300
$1,300
$1,300
0%
Model 400
$1,688
$1,688
$1,688
$1,688
$1,538
-9%
Model 500
$1,300
$1,300
$1,300
$1,300
$1,300
0%
Model 510
$2,100
$2,100
$2,000
$2,000
$2,000
-5%
Model 530
$9,250
$9,250
$7,960
$7,960
$6,180
-33%
Model 600
$7,350
$7,350
$6,925
$6,925
$2,950
-60%
Model 620
$4,983
$4,983
$4,283
$4,283
$3,300
-34%
Model 640
$19,500
$19,500
$18,333
$18,333
$8,300
-57%
Model 720
$48,150
$43,483
$41,592
$41,592
$38,067
-21%
Model 730
$121,556
$103,111
$100,111
$100,111
$93,389
-23%
Model 9406
$5,950
$5,950
$5,950
$5,950
$5,950
0%

$16,934
$15,268
$14,608
$14,608
$12,533
-26%

The value of the Model 170 has dropped from an average of $11K to $8K (down 25%); the Model 530, from $9K to $6K (down 33%); the Model 600, from $7K to $3K (down 60%); the Model 620, from $5K to $3K (down 34%); the Model 640, from $20K to $8K (down 57%); the Model 720 from $48K to $38K (down 21%); and the Model 730, from $121K to $93K (down 23%).

Does this portend a runaway buyer's market for iSeries? Probably not, and here's why!

Dissecting the Numbers: Slow Market Reflects Economy/New Technology

The number of models for which ITParade.com has a quote actually decreased over the last three months, indicating that the volume of machines that are available has also probably decreased. So, instead of a "market free fall," the fall in prices is more likely an indication that there are fewer machines available in used equipment inventories. Normally, one might expect this to drive the prices upward.

However, since we're experiencing an extremely sluggish IT economy, there's simply less demand for the equipment, driving the prices lower.

By comparison, a "runaway" iSeries buyer's market would show us an increase in the numbers of models and machines available for resale. Instead of seeing very stable prices for such machines as the 300 and 500 model series, a "runaway" buyers market would see these prices too collapsing under the weight of added inventory.

More than likely, as newer IBM Model i270s and Model i800s enter the marketplace, customers who are shopping for upgrades are taking advantage of IBM's aggressive push to sell the new machines and sending their older 170s, 600s, and 700s out to the used equipment market. However, instead of meeting a strong demand from a robust economic base, these machines are sitting in inventories, awaiting buyers.

New iSeries Models Impact Used Equipment Prices

And when you see the line up of what the new iSeries models hold, you begin to understand why.

iSeries Model Summary
i270
i820
i830
i840
i890
Number of Processors
1-2
1-4
2-8
8-24
16-32
Processor CPW 1 (Max)
2,350
3,700
7,350
20,200
37,400
Logical Partitioning (LPAR)
Yes
Yes
Yes
Yes
Yes
Linux Ready
Yes
Yes
Yes
Yes
Yes
Domino Mail and Calendar Users (Max)
6660
11800
20900
77800
More than 77800
Integrated 1-way xSeries or IXS (Max)
3
12
28
32
32
External n-way xSeries or IXA (Max)
2
4
8
16
32
Disk Capacity (Max)
844 GB
8 TB
22 TB
38 TB
72 TB
Main Memory (Max)
16 GB
32 GB
64 GB
128 GB
256 GB
5250 Interactive CPW (Max)
70
2,000
4,550
20,200
37,400

The new i270 and the i8xx models are some of the most robust iSeries available for the money, all with the ability to perform logical partitioning and to run Linux and IXS servers. This new product line-up is really stealing customers away from the older models that have fewer expansion capabilities and less ability to run the new OS/400 V5R2 operating system.

Still, the current discrepancy in the used equipment market makes for some great bargains for customers who are looking to upgrade their iSeries or AS/400 installations at the top end of the market, but who don't have the budgets to move up a notch to buy new models in the i8xx series of machines. These new models--the i820, i830, i840, and i890--are what IBM's marketing campaign calls "mainframes for the masses." It's IBM's latest push to move the iSeries out of the image as an "obsolete platform." These machines can run almost anything: OS/400 applications, NT/2000 applications, and Linux and UNIX applications. It's no wonder that--considering the sluggish IT economy generally--those interested in increasing their iSeries capacity are taking a serious look at the newest offerings.

Such is also the case for customers who are in the market for a low-end iSeries server. To them, the aging Model 170s may seem like a dead end, because IBM has supplanted the Model 170 with an i250 and an i270: two machines that fill a similar niche as pieces of low-end equipment. Furthermore, since the 170 has fewer options to take advantage of the latest OS/400 V4R2, its growth path may appear very limited.

Buying New or Buying Used: No Longer a Simple Choice

Considering the state of the economy and the state of the latest iSeries technology, it's understandable that the used iSeries and AS/400 market is slow. The choice between buying used iSeries equipment or going with the latest technology is not as simple as it once was, and the current numbers from ITParade.com reflect this. V5R2--with its advanced features and functions that allow it to run a variety of applications from other operating system platforms--may well be the latest threshold that separates the past from the future for this midrange platform.

In the meantime, however, it's a great opportunity to consider what an upgrade--to a pre-owned, refurbished iSeries--can do for your budget's bottom line. With prices falling to new lows, there may never be a better time to up your performance and gain kudos from your CFO.

Thomas M. Stockwell is the Editor in Chief of MC Press, LLC. He has written extensively about program development, project management, IT management, and IT consulting and has been a frequent contributor to many midrange periodicals. He has authored numerous white papers for iSeries solutions providers. His most recent consulting assignments have been as a Senior Industry Analyst working with IBM on the iSeries, on the mid-market, and specifically on WebSphere brand positioning. He welcomes your comments about this or other articles and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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