Volume 4, Number 12 -- April 5, 2007

IBM Offers Rebates on System p5 and ISV Software Bundles

Published: April 5, 2007

by Timothy Prickett Morgan

With its Power6 processors and their related new server designs coming later this year, IBM has to work every angle to make a Unix server sale. And it has to do so in such a way that it can keep revenues high and get its partner channel motivated to help push the gear when customers would probably wait a little while longer if they have a chance.

To that end, IBM has announced a rebate deal for its System p5 servers that gives customers some cash back if they ink a deal for a new box as part of an application software installation or upgrade. The rebate deal gives customers a rebate on a range of System p5 boxes, from single-socket p5 520 machines all the way up to 32-socket p5 595 servers. There are a wide range of applications--106 different applications, many with multiple modules--from 37 different independent software vendors that are part of the deal. Applications from Oracle, SAP, JDA Software, Lawson Software, Business Objects, Cognos, Dassault Systemes, Sybase, SunGard, and Sterling Commerce dominate the list.

As is often the case in similar deals that IBM uses to push other server platforms, the size of the rebate varies with the performance and capacity of the server platform that customers buy. On an entry p5 520 with a single 2.1 GHz Power5+ processor core activated (and a second core that can be activated later), the rebate is $1,000. On p5 machines with four, eight, or 16 cores, the rebate ranges from $2,300 to $56,250. On the top-end p5 590 and 595 machines, which have a maximum of 16 or 32 cores and which are sold with both Power5 and Power5+ chips, the rebates range from $37,500 to $225,000. To take part in the deal, the customer has to install a new machine serial number, which means that for accounting purposes, a push-pull upgrade cannot be counted as an upgrade. If customers get rid of an existing machine as they install their new ISV software on the System p5 box, they will have to write off any remaining investment they have on their books for the older setup.

The rebate comes right back to the customer, which is good for both IBM and the customer. By doing a rebate instead of a straight discount, IBM can keep its prices higher on System p5 gear, and therefore book the higher revenues in the second quarter for the deals it does; the rebate doesn't come off the revenue, but is a cost of sale, which means it only affects profits. IBM's Unix server sales have exploded in recent years--to be fair, a lot of the growth in the Unix market came because of IBM's aggressive pSeries sales. But sales have flattened or declined in the past two quarters as rivals Sun Microsystems and Hewlett-Packard have their Unix platforms back in order and can deliver price/performance that rivals that which IBM can deliver with the System p5 machine.

The ISV rebate offering is an open-ended deal, but you can bet that it gets killed off as soon as Power6-based servers are announced sometime around the middle of this year. IBM has been vague about when Power6 systems will be here, and has said even less about AIX V5R4.

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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik,
Shannon O'Donnell, Timothy Prickett Morgan
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