The Four Hundred

With few exceptions, IBM's refresh of the iSeries lineup is being very well-received by the reseller community. Resellers like what they're seeing with the proposed across-the-board price cuts and the $10,000 entry-level iSeries 800. They like the inclusion of standby processors as a standard item, and they especially like the new packaging, which shifts attention away from the interactive tax. Overall, they say, it's a good way to start breathing new life back into the box and allowing it to compete with Windows and Unix.

The reseller community's acceptance of the new iSeries lineup is critical for one very important reason: It does the final deal-making and hand-shaking on 80 percent of iSeries deals, which is a larger percentage than any other class of server. (IBM sells direct to the remainder, and probably gets half of total revenues because it keeps the biggest accounts for itself.) While a certain amount of boosterism is to be expected from this enlightened self-interesting crowd, one cannot have a conversation with a reseller about IBM's January 20 announcements without coming away feeling pleased with the new iSeries lineup, and that this announcement has been a long time in coming.

"From time to time, it surfaces that IBM is sunsetting or cash-cowing the iSeries. I think this announcement shows that they're committed to the long haul," says Tony Madden, vice president of IBM server sales at Phoenix-based Avnet Hall-Mark, the largest iSeries distributor. "We're very excited. I think this is a great announcement."

Madden had similarly positive things to say about the Green Streak promotion, in which IBM cut prices by about 50 percent on specific low-end iSeries Model 270s and 820s during the second half of 2002. IBM's iSeries managers say that the pricing for the new iSeries lineup will basically be an extension of the price cuts that customers and resellers saw with the Green Streak boxes, and in some cases gives users up to an 80 percent reduction in price for equivalent performance. "We did a boatload of 270s in the fourth quarter" of 2002, Madden says. "We had our best quarter ever, and we attribute that to Green Streak."

While IBM did not include pricing with its January 20 announcement, Madden remained optimistic. "I don't have final pricing. The devil's in the details, but my gut says it should be a good year," he says. "They're breathing some life into this thing."

IBM gave a glimpse of pricing for the entry-level iSeries 800 and i810 servers with the January 20 announcement. If that pricing holds across the low-end, it bodes well for users and resellers, says Curt Schwinck, a senior account executive at Macrocomp International Technologies, an IBM reseller in Southern California.

"It's a paradigm shift for IBM. They're simplifying the product line," Schwinck says. "From a business partner perspective, the entry-level boxes generate a lot of interest in the marketplace. . . . IBM is getting aggressively competitive with other boxes out there, specifically Windows and Unix at the low end."

Before, an entry-level iSeries could be several times the cost of a Wintel server with equivalent horsepower. Pricing the iSeries within 20 percent of the PC price point creates a compelling reason for a customer to look at the iSeries instead of a Wintel server, says Madden. "Maybe the product was priced incorrectly," he says.

But is it too late for a price correction? Bob Panos, director of product solutions at the Chicago reseller Sysix, which sells servers from IBM, Hewlett-Packard, and Sun Microsystems, wonders why the price cut took so long. "The '400 is a good box, but you have to start saying, 'Why pay a premium?' " says Panos, who doesn't sell the iSeries. "I don't see many people putting a ton of new products on the iSeries. They're switching to Unix, or a Wintel box, because it's more mainstream to support."

That the iSeries isn't being chosen for new workloads is a source of concern for Pete Elliot, director of marketing for Key Information Systems, a Woodland Hills, California, reseller. Elliot, who estimates a 20 to 30 percent reduction in the number of AS/400 and iSeries servers in use every year, doesn't see many reasons why IBM's repackaging of the iSeries will change that. "IBM needs to reinvent what the '400 is and where it's going, or it will cease to exist," he says. "Al Zollar has his work cut out for him."

But it wasn't all doom and gloom with Elliot: "I do think it's the right thing," he says of the proposed price cuts. "We will have to make it up in volume. It breathes some life back into it and extends the '400's longevity."

Resellers say they're happy that IBM will be reinstituting its profit margins on the new boxes. While they will need to sell more boxes to get the same revenue they had by selling older, more expensive iSeries servers, they won't be hit as hard by the price cuts as they were during the Green Streak promotion. "We took it in the shorts on Green Streak," says Macrocomp's Schwinck. Whereas during Green Streak, margins dropped to 5 percentage points or less, the margins will reportedly be back to the pre-Green Streak level of about to 20 to 30 percent, depending on the business partner's position in the food chain.

While a full accounting of the new pricing was not yet available, some resellers raised the specter that the price cuts might go too far. If the iSeries price cuts turn out to be as extensive as they appear from IBM's January 20 announcement, it could have a detrimental effect on resellers' ability to make a profit if a sales increase doesn't pan out. "The only thing from a channel perspective is, 'Have they done too much in the pricing?' " asks Madden. "We've got to sell 20 percent more to break even. [But] the upside is bigger than the downside." This comment, incidentally, jibes with some recent talk that suggests IBM expects the vast majority of midrange and high-end OS/400 shops to opt for the Enterprise Edition of OS/400, rather than the less expensive Standard Edition, which does not support 5250 green-screen workloads except on the Model 800.

The resellers also applauded IBM for the timing of this announcement. By announcing the changes at the beginning of the year, it lets resellers sell the story before customers have solidified their budgets for the year. "IBM appears to have fast-tracked this announcement," says Schwinck, adding that some printed materials on the new servers won't be available until March, although the servers become available on February 21. "Anytime there's a pending announcement, all sales stop."

The new requirement that customers buy from IBM a one-year maintenance agreement with the purchase of a new iSeries shouldn't come as a big detriment to selling new iSeries iron, although it will crimp the style of some do-it-yourself customers. "IBM's revenues are in transition," says Madden. "They're putting more emphasis on software and services, which is consistent with their overall direction."

Resellers were also optimistic that the introduction of Standard and Enterprise editions of OS/400 would help calm the furor over the price of interactive processing capability, and that the new, simplified tier structure would be more just.

As usual, the resellers had excellent things to say about the technological enhancements to be delivered with the new iSeries. There is much excitement about the new Power4-based servers, the new PCI-X backplane, and especially Capacity Upgrade on Demand, in which standby processors are included as a standard feature of the larger iSeries boxes, the i825, i870, and i890. "We go through huge sizing exercises, thinking up worst-case scenarios and trying to get enough headroom for year-end peaks," Schwinck says. "Now you can rent the CPW. They're built in."

The new Capacity Upgrade on Demand functionality is a good example of how IBM has beaten its competitors when it comes to delivering self-healing, autonomic features, Madden says. "They've intercepted the market. Like Wayne Gretsky, they've been skating to where the puck's been going, on all of their servers," he says.

If the 50 to 80 percent reduction in list prices holds true, this is a "very positive" move by IBM, says Schwinck. "Overall, we've got a system that's very fast and very flexible," he says. "The key is that it can scale up without whacking you in the wallet so bad that it kills the deal before the sale."