IBM Slashes Power Systems Memory Prices

Published: November 30, 2009

by Timothy Prickett Morgan

Big Blue's desire to kick Sun Microsystems when it is down in the Unix business as the Oracle acquisition and Sun's failed "Rock" processor have left customers wondering about the platform, and to steal some accounts away from Hewlett-Packard where customers are perhaps are a bit annoyed by the delays in the "Tukwila" Itanium servers, is playing into the hands of Power Systems i shops, who some days seem to be an afterthought for IBM.

Here's the deal, and actually, what IBM is doing really is a deal. Last week, as noted in announcement letter 309-879, the company slashed memory prices on the Power Systems line. Scott Handy, vice president of marketing and strategy for the Power Systems division, and Mark Olson, worldwide Power Systems i product manager, walked me through the price cuts and explained IBM's rational for cutting memory prices by between 28 percent and 70 percent.

According to Handy, IBM has been able to do around $500 million in competitive takeouts on HP and Sun iron each year, replacing the machines with Power-based servers (generally running AIX, but also with a smattering of Linux and i/OS), from 2006 through 2008. That $1.5 billion is a pretty tidy business for a relatively small number of accounts--several hundred per year--and it keeps giving year after year (so long as customers are happy) in the form of upgrades, maintenance, and software sales. Despite the downturn in the economy this year, Handy says that IBM did $150 million in competitive takeouts in the third quarter alone, and has busted through $400 million in the first nine months of the year. Handy analyzed the sales data and the pipeline, and discovered that the relatively high price of DDR2 main memory on Power Systems iron was keeping people from migrating and consolidating as many workloads as they wanted to do. And that means IBM is leaving money on the table.

Sometimes in business, you have to give a little to come out ahead. So IBM's marketeers took out their red pens and slashed memory prices to remove that barrier. On the high-end Power 570 and Power 595 boxes--which represent a lot of the Power Systems revenue and probably most of its profits--IBM has chopped the price of raw memory cards and the cost of activating memory features such that it costs 40 cents per MB for memory capacity. That's a 70 percent discount off list prices the day before the price cut was announced. This is not a promotional price, by the way, but an honest-to-goodness price cut--something we haven't seen out of IBM in a very long time.

On a typical Power 570 configuration, says Handy, the memory price cuts will allow the overall system cost to drop by around 27 percent. "Clearly, that will let us be more aggressive in the marketplace," he says.

IBM has also normalized prices on memory modules regardless of how much memory is in the DIMMs and how much is activated, and the price cut is in effect worldwide. So it is 40 cents per MB no matter if customers want to use 1 GB, 2 GB, 4 GB, or 8 GB memory modules to build up their cards.

On the Power 520, Power 550, and Power 560 machines, memory prices were already lower, so IBM is not cutting so deeply. On these entry and midrange servers, DDR2 memory capacity now costs 25 cents per MB, which is 28 percent lower.

There are two exceptions to the rules above. One is the pricing for 8 GB memory modules for the Power 560 machine, which are priced at the same 40 cents per MB as the memory used in Power 570 and Power 595 boxes. The other exception is the 256 GB feature card used in the Power 595 servers to boost overall memory capacity beyond 2 TB, which uses very expensive 16 GB DDR2 memory modules. This fat memory now costs $1.05 per MB, which is a 50 percent price cut.

Some observations. First, this is the second time in recent years that IBM has cut prices for memory on Power Systems. The last time, back in August 2008, IBM chopped memory prices by between 26 and 50 percent to boost the usage of the PowerVM hypervisor and to convince customers of all of its platforms--AIX, i/OS, and Linux--and those moving from other platforms--Solaris, HP-UX, and others--to heavily virtualize their workloads and consolidate. Processing capacity is not generally a bottleneck on Power Systems iron, but memory is a big deal on any virtualized system.

The second thing to note is that IBM did not cut memory prices on any of its J series of blade servers--the JS12 or JS22 blades using Power6 processors or the JS23 and JS43 blades using the Power6+ chips. Back in May, IBM deeply slashed the prices it charged on memory for JS12 and JS22 blades--I'm talking about between 49 percent and 70 percent, depending on the blade and memory module. But still, customers buying Power blades should basically ask for the lower of any two prices--whatever IBM is charging on a two-socket or four-socket rack or tower server or the current price of the blade memory after the May cuts.

The third observation is that IBM has not cut processor feature or core activation prices on the Power Systems lineup. Handy says that IBM does not feel like it needs to cut these prices to compete. And ditto for systems software, like the i/OS stack. Now is a good time to give IBM some feedback on that, if you have any strong opinions. I already did on your behalf, but I can't do this alone.

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