IBM Gives Rebates and Trade Ins to Push the i5 520 in Q4

by Timothy Prickett Morgan

IBM may not have announced the entry-level, feeder i5 machine that many of us would love to see the company bring to market, but it is playing around with some deals in the fourth quarter specifically aimed at promoting the single-socket i5 520 servers. It is unclear if this is a precursor to the announcement, perhaps next year, of a low-cost i5 machine, but I certainly hope that it is.

First, let's talk about the deals, and then let's ponder what this might mean for the long term.

There are three different i5 520 promotions that IBM put on the books last week. The first is the i5 Model 520 Promotion--catchy name, eh?--which gives a rebate to customers who buy or lease i5 520s with specific i5/OS Enterprise Edition features activated. The first configuration with a rebate is the i5 520 with server feature 0903 and i5/OS Enterprise Edition feature 7453, which has a single 1.5 GHz Power5 core activated, an i5/OS license activated, and a 5250 Enterprise Enablement feature for that processor core that allows the full 2,400 CPWs of power in that machine to be dedicated to green-screen workloads if customers so choose. This machine has a list price of $103,000 with no memory, disk, or other peripherals installed but including those i5/OS features; IBM is giving customers who buy or lease a machine a rebate of $6,500, which is effectively a 6.3 percent discount.

The next configuration with a rebate is the i5 520 with server feature 0904 (that's a single 1.65 GHz Power5 core) and the i5/OS Enterprise Edition (feature 7544), which includes activation of i5/OS and the Enterprise Enablement for that core. This machine is rated at 3,300 CPWs and costs $149,000 for a bare-bones central electronics complex (CEC). IBM is giving a rebate of $11,500 on this box, which is effectively a 7.7 percent discount.

And finally, the rebate can also be applied to the i5 520 with server feature 0905 (two 1.65 GHz cores) with i5/OS Enterprise Edition feature 7457, which has both processor cores activated, but i5/OS and Enterprise Enablement only activated on one core. This machine has about 3,000 CPWs of green-screen processing capacity, plus another 3,000 CPWs of capacity that can be activated for i5/OS or dedicated to Linux. This i5 520 costs $175,000, and IBM is offering a rebate of $12,500 on it, which works out to a 7.1 percent discount on a base CEC.

Remember, customers have to buy memory, disks, and other peripherals for the boxes, too, and the discounts do not, officially, apply to these components. But customers should try to bend IBM's or their partner's arms a bit to get them to see that the discount should apply to a configured system, including memory, disk, and any feature cards they need. This rebate deal can only be applied to sales after October 11 and before December 31, 2005. You have to get your paperwork to IBM by February 28, 2006, to get the rebate.

If you are getting rid of an old AS/400 or iSeries entry machine and replacing it with an i5 520, IBM has another deal for you, too. The i5 Model 520 Trade-In Promotion, which also begins on transactions dated October 11 and expires on December 31, gives customers who are getting rid of older OS/400 iron a $2,000 trade-in credit (which is not a rebate, but a credit good toward the purchase of other IBM goods and services). The trade-in can be applied to deals involving the takeout of AS/400 Advanced System 510 or 530 machines, AS/400 Advanced Series 50S, AS/400e 170, 6XX, and SXX, and iSeries 270 and 7XX machines. You have to buy one of the three machines mentioned in the prior deal as a replacement machine, and they have to run the full-tilt-boogie i5/OS Enterprise Edition. This $2,000 trade-in credit is just a mild sweetener on the deal, and most of the machines it applies to on the takeout side have no economic value. (Although some of their feature cards, which are still in demand, do have economic value. So if you do such a deal, get a second-hand dealer to come in and see if you can't get some more dough for the peripherals you put into the box over the years.) If your current machine is under lease, the lessor can upgrade that machine as part of this deal.

Finally, if you want to buy an i5 520 High Availability Edition, which is an i5 520 running i5/OS Enterprise Edition that has some of the extra software and cost stripped out, to use as a mirror for your production machine, IBM is giving rebates on this box under the i5 Model 520 High Availability Promotion. This deal also runs from October 11 through December 31. There are four i5 520 High Availability Editions, and they all have rebates. The i5 520 HA Edition with 1,000 CPWs costs $38,000 and has a $1,000 rebate (that's a 2.6 percent discount, which is a bit stingy if you ask me); the machine with 2,400 CPWs costs $93,000 and has a $7,500 rebate (an 8 percent discount); the machine with 3,300 CPWs costs $129,000 and has a $15,000 rebate (an 11.6 percent discount); and the machine with 6,000 CPWs that costs $155,000 has a $30,000 rebate (a 19.3 percent discount).

So, does this sound like a "Green Streak, Part III" promotion to you? Probably not. Back at the end of 2002, when IBM was testing the waters on how it might revamp pricing and packing on the machines that were due in early 2003, it launched the "Operation Green Streak" pricing promotion. Under this packaging deal, IBM offered entry iSeries machines at half price to customers who upgraded from earlier boxes. IBM did the Green Streak deal for a bunch of different reasons, but it wanted to test the packing and pricing of entry iSeries boxes and measure price elasticity and how it pumped up demand for boxes--or didn't. And when the iSeries 800 and 810 machines were launched in January 2003 with substantially improved price/performance that basically embodied the Green Streak promotion, you could say that IBM believed that by lowering the price it could boost demand for entry iSeries machines. With the i5 generation of machines, the i5 520 Express machines offered anywhere from 21 to 55 percent better bang for the buck than the entry iSeries 800 and 810 boxes they compared to--and that was for configured machines.

What last week's i5 520 deals look like to my eye is the normal, run-of-the-mill, rebates and trade-ins to try to get deals to close in the fourth quarter. This sure doesn't smell like a precursor to a revamping of the entry i5 line to me. And, as you might expect, I am not entirely happy about that. But, IBM owns the iSeries line; I don't. But if you want IBM to change its ways and get truly competitive with Windows at the low-end of the iSeries line as it is in the top-end of the iSeries line compared to Unix machines, then you have to tell your partner, your IBM sales rep, and all of IBM's managers that you want Big Blue to actually compete directly with entry Windows servers. IBM doesn't want to do this because it is risky and it will hurt short-term revenues and profits. The partners do not want this, either. But as I have said many times before, the iSeries needs a competitive set of machines that compete head to head with Wintel boxes in the way they are packaged and priced. This, I believe, is how you grow the iSeries ecosystem and get it out of maintenance mode.