New IBM Deal Gives Decent Trade-In Rebates on Old Gear

Published: April 17, 2006

by Timothy Prickett Morgan

As I reported in the last week's issue, IBM is getting set to raise monthly maintenance fees on AS/400 servers by 9 percent or so starting July 1. This maintenance hike is the stick that Big Blue often uses to move customers ahead to newer iron. The stick is usually accompanied by a carrot, and last Friday, IBM put that side of the carrot-and-stick promotion out.

Specifically, IBM announced a trade-in promotion that gives companies who exchange their AS/400 or iSeries servers for a new System i machine. This trade-in promotion is meant to represent the approximate fair market value of the takeout machine, plus an additional incentive to help cushion the blow of paying for a new System i box. As IBM has done in the past, it is giving a better trade-in to customers who act now rather than wait until later. And like so many IBM deals in the past, this one does not give customers a discount that lowers the amount of money they spend on capital equipment at IBM as part of an OS/400 server deal, but rather gives them a trade-in credit that is good toward the purchase of other products and services from Big Blue.

To take part in the deal, you can trade-in an AS/400 50S or 53S server; an AS/400 500, 510, or 530 system; AS/400e 6XX, SXX, or 7XX server; or an iSeries 250, 270, 820, 830, or 840 server. Customers trading in these machines can buy one of three different configurations of the new System i5 machines, all of which are based on the 1.9 GHz Power5+ chip and all of which are equipped with i5/OS Enterprise Edition; this means these machines run 5250 workloads at full-tilt boogie. These machines eligible for purchase under this trade-in promotion include the i5 520 with a single processor (feature 7734) that is rated at 1,200 CPWs, the i5 520 with a single processor rated at 2,800 CPWs (feature 7735), and a two-way capable i5 520 that has one processor activated for an initial 3,800 CPWs (feature 7736, expandable to 7,800 CPWs). The two less-powerful machines are in the P10 software tier, while the latter is in the P20 software tier.

In a new twist on this kind of deal, IBM is specifying how much customers have to spend on a complete configuration to get the trade-in credit, and if you spend more, you get more, too. Here is what the discounts look like if you acquire a new System i5 520 machine before June 30:

If you think about those numbers for a bit and realize that the i5 list prices are for bare bones machines without a single memory card, disk drive, or peripheral, then you will quickly realize that you will probably have to spend at least as much as the deal calls for to get the higher trade-in credit. For instance, it makes no sense to spend $77,000 to buy the smaller i5 machine, since if you spend the extra $3,000, you can get it back in trade because you get a higher credit. This deal is really just setting the minimum deal price in a very clever way. Similarly, it makes no sense to spend much more than that cusp price, since you won't get a discount on any additional dollars you spend. That is what the "Approx Discount" column in the table shows: If you take that trade-in credit and divide it by the cusp deal price ($80,000 or $140,000 or $200,000), that is effectively the discount you are getting. And, as you can see, these prices are uncharacteristically generous for IBM.

Even if you buy after June 30 and before September 30, the trade-in credits are not so bad, either. Take a look:

This deal is being offered in the United States and Canada, but you already know what I think customers outside these areas should do--make IBM give you the same deal. The name is International Business Machines, not North American Business Machines. Although "nab 'em" does make for an interesting acronym when you say it out loud.