IBM Does More Deals to Move Power Systems Iron

August 3, 2009 Timothy Prickett Morgan

IBM‘s deals to try to stimulate business for its Power Systems product line, and the System p and System i products that preceded them, are a bit like the weather. There is a pattern to them, but it is not quite as predictable as you might like. Just before The Four Hundred took a week of summer vacation at the end of July, Big Blue rolled out a bunch of deals to help resellers and its direct sales force grease the wheels of commerce a bit.

Call me old fashioned, but marketeering people are just a little too clever and this might be one of the reasons why it is so hard to get customers to spend money. IT vendors don’t want to admit that they need to cut price on any product, as if they could maintain price for 18 to 24 months in a market as crazy as the IT space, as if list price really meant anything but a price ceiling that you can count on and the price floor is determined by how strong the customer’s position is at the negotiating table each and every time a deal gets done. (And the relative strength changes over time, for sure.) By doing rebate, trade-in, and other deals that do not impact the basic striking price of a system by all that much, companies like IBM get to keep revenue streams as high as possible. But you need only look at the operating profits–or lack thereof in the case of the Systems and Technology Group at IBM–to see that there is plenty of wheeling and dealing going on and that the group is probably not even profitable at all.

Call me crazy, but maybe if IBM just cut its prices and gave everyone a fair deal based on current economic conditions, then just maybe it might be able to have customers chasing its iron instead of trying to push it into sites with complex deals. The revenue might be the same, but the grief would be lower. But what do I know?

Anyway, on June 21, in announcement letter 309-555, IBM put out a Power Systems Competitive Migration Rebate offering, which is a companion to a software application deal the company announced a few weeks ago.

With the ISV deal from a few weeks ago, IBM is giving rebates on Power Systems iron to customers who are installing software from 88 different software companies, and it has to be the first time in the history of the company that the software, which has to run on the Power Systems box, has ever been installed on the machine. On rack and tower machines, the rebate ranged from $2,000 on a Power 520 with two 4.2 GHz cores to $28,000 on a Power 550 with 16 3.6 GHz cores. On larger enterprise boxes, the rebates range from $9,000 on a Power 570 with four to seven 3.5 GHz cores activated to $225,000 on a full-bore, 64-core Power 595 using 5 GHz Power6 chips. Customers buying a four-core JS23 blade get a mere $500 rebate, and an eight-core JS43 gets only $1,000 for the rebate.

With the competitive rebate offering announced in July, now customers who are migrating application software from a non-IBM platform to a Power Systems box can get rebates, and in many cases they get bigger rebates than the greenfield ISV customers. (Yeah, I know. How does that make sense?) For the ISV migration rebate offering, rack and tower machines have rebates that range from $2,000 on a Power 520 with two 4.2 GHz cores to $31,000 on a Power 550 with 16 3.6 GHz cores. On larger enterprise boxes, the rebates range from $10,000 on a Power 570 with four to seven 3.5 GHz cores activated to $250,000 on 64-core Power 595 using 5 GHz Power6 chips. Customers buying a four-core JS23 blade get a mere $500 rebate, and an eight-core JS43 gets only $1,000 for the rebate, same as with the greenfield ISV deal. Under this offering, customers have to either buy an upgrade to new ISV software or migration services to port over existing applications to i, AIX, or Linux.

Both of these Power Systems rebate deals do not have an expiration date.

But the Power 570 Memory Rebate Promotion, detailed in announcement letter 309-554, expires on September 30, which is the end of the third quarter. Under this deal, customers are getting rebates on memory activations for Power6+ versions of the Power 570 boxes. (This deal was announced announced last October with double the core count of the Power6-based Power 570 that came out in July 2007.) The Power 570 with the Power6+ chips is offered on two flavors of the machine: one flavor puts one chip per processor card (for a maximum of 16 cores in a four-chassis box) with clock speeds of 4.4 GHz or 5 GHz, or one that puts two chips per processor card (for a max of 32 cores) running at 4.2 GHz. Both machines top out at 768 GB of DDR2 main memory.

With this rebate, IBM is giving customers who buy a new Power6+ version of the Power 570 (or who upgrade another machine to these boxes) $290 back for every gigabyte of memory they activate on the boxes. IBM doesn’t publish list prices any more and doesn’t put together Quick Pricers, which makes it tough for anyone to figure out if this is a good deal or not. But the last time I know that IBM cut memory prices for the Power Systems line, which was in August 2008 when it wanted to boost the use of logical partitioning, the price to activate 1 GB of main memory was $1,060, and that makes the rebate, from the point of view of the customer, what amounts to a 27.4 percent discount off the price of buying memory on the new or upgraded Power 570.

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