Doin’ A Land Office Power7 Business Down In Texas

March 25, 2013 Dan Burger

It’s good to know when business is good. But you usually hear about it quicker (and louder and more often) when it’s not. Fortunately, when I want to know a little something about the IBM i business, there’s a guy in Texas I call. He always starts off by saying “my view of the world is pretty narrow.” And that’s a fact. But I always say something to the effect of “if the crumbs are good, chances are the cake is, too.”

A lot of you folks know the Texan I’m talking about. His name is Doug Fulmer and he put in a lot of time with IBM and its midrange computers that have a list of names longer than the lane to an East Texas ranch. Currently, Fulmer is a senior systems architect for KS2 Technologies, a Texas-based reseller of, among other things, Power Systems hardware running IBM i. I’ve found Fulmer to be a particularly good barometer for the small to midsize market, where IBM i on Power Systems remains a potent combo. And the popular choice for Power Systems hardware in IBM i shops is the Power 720, which is available in a 4U rack or tower with a single socket and a choice of four, six, or eight cores.

At the moment, Fulmer says the Power7+ entry machines announced on February 5 are still too new to the market to show up in a lot of deals. “To a customer, Power7+ doesn’t make any difference,” explained Fulmer, and that is a sentiment that many would argue with in specific cases. “Power7 was already overkill. IBM gets more excited about Power7+ than customers do.”

And for many customers, provided partners work the numbers a little bit to compensate for performance differences and therefore price/performance differences, the Power7 machines are plenty good enough unless they need the CPW, memory, and I/O expansion in the new Power7+ boxes.

The main thing is that even Power7 machines are so much better than the older Power5 through Power6+ machines in the field that actually need to be upgraded to run modern software. As the basic package for entry-level business computing featuring the IBM i operating system and the DB2 database, IBM continues to increase the value with each generation. The Power7 systems provide much greater price/performance than the previous models, so much so that many consider it to be more computing power than most of the current customers require. There must be some truth in that or there wouldn’t be an even less expensive Power 710. It’s also the reason Sirius Computer Solutions (see IBM i Cloud Watch elsewhere in this issue of The Four Hundred) and others are offering cloud-based options for customers.

The question that has people, at least some of us, wondering is how is the mainstay of Power Systems running IBM i, the Power 720, doing in the marketplace?

“We sell mostly six-core P10s in the range of $50,000 to $60,000, with some up to $75,000,” Fulmer said during a phone conversation last week. And business is good for the downstream partner in the Arrow Electronics sales channel. Arrow is one of IBM’s master distributors, a designation for the main distribution channels that push IBM technology to the buyers.

Interest in the Power7 servers has been brisk, according to Fulmer. “We’ve sold nine in the last two months with four more scheduled in the next month and a half. That’s a lot for a company our size.”

What this smaller reseller in Texas is seeing in terms of customer buying habits is encouraging. But does it translate to the rest of the SMB market throughout the United States? I think it’s a pretty good indicator. There is variety in what appears here that paints a somewhat broader picture than geography alone. Maybe the biggest question is whether there are resellers across the country that are digging as deep into the seldom-contacted IBM i community as KS2 is doing. Again, I think that is probably the case.

“Most of these sales are companies that sat on old iron for a long time,” Fulmer said. “They understand it’s time to move on.”

The machines that are being retired typically were purchased with 70 GB drives. Now 512 GB is the standard. Fulmer sees customers putting fewer drives and not as many disk controllers in the new boxes. The old controllers handled 12 or 15 drives, while the new controllers handler 18 or 24. Where trade-in machines were originally equipped with 8 GB or 16 GB of memory, 64 GB is common with the customers Fulmer deals with most often.

“We have a few customers that do client server stuff,” he said. “We have a customer doing a lot of .NET stuff on the front end, with the IBM i handling the backend. We also have a JD Edwards practice. There are a few companies that are moving from World to EnterpriseOne–an upgrade on JD Edwards that drives them into a little bit bigger machine. We have an insurance company customer that is rewriting an old application in Java and that will require more hardware resources. We don’t see a lot of customers adding workloads such as mobile. A lot of that is getting done on the Intel side where there are more developers.”

Despite what Fulmer describes as a very competitive sales territory with more than a half dozen resellers offering Power Systems iron, KS2 still finds IBM midrange customers that haven’t had anyone call on them for four or five years. Those customers, he said, are pleasantly surprised to hear they can get new assets, with three years of hardware maintenance as a warranty, and reduce their cost of computing by saving on the hardware and software maintenance costs of their old P10 or P20 compared to a P05, which is all the computing power they need.

More often than not, these companies are not being held back from upgrades because they are tied to software that is incapable of supporting the latest versions of IBM i. Usually they have dropped software maintenance on an ERP package from Oracle, SAP, or Infor because of escalating costs. “Now they are so far back on software upgrades the cost of getting current dwarfs the cost of the machine and it prices them out of the market,” Fulmer said.

The JDE companies on older versions of that software are taking one of two options based on what KS2 sees.

Most can use P10 iron and are looking at a hardware upgrade cost of $40,000 to $45,000. The cost to upgrade JDE is likely three to four times that amount because of penalties to get current, the price of the software upgrade, then the services cost for the fixes, code changes, mapping data, and so on. Fulmer puts a $75,000 estimated price tag on the services portion alone. Based on his experience, roughly half of the customers will bite the bullet and pay for the upgrade. The other 50 percent will continue with what they have in terms of software and hardware waiting for a cheaper alternative, maybe a move to Windows on X86 systems, down the road. Meanwhile the price difference between Windows on X86 and IBM i on Power narrows to the point where the difference in an overall project cost of hundreds of thousands of dollars is pretty much negligible.

“We have a customer that just bought an Intel server,” Fulmer noted. “The enterprise license was $2,000 for Windows. The price for a comparable IBM i license was $2,500. The hardware difference was maybe $5,000.”

KS2 moves almost all of its customers buying Power7 machines to the 7.1 version of the operating system. A few, because they have a third-party software piece to their ERP systems that still does not support i 7.1, run on i 6.1.

“In the SMB world, more companies are letting their IT people go,” Fulmer said. “They want KS2 to do all the services–upgrading hardware and software–for them. They don’t want to mess with having the skills in-house anymore. The services end up being as much as the hardware.”

That’s the view from Texas. If this doesn’t fit with the SMB landscape in your region in terms of buying Power7 iron, drop me a line. I’d like to hear your version of the story. We’ll be talking to a bunch of distributor and reseller channel partners to get a read on what is going on out there with the Power Systems market over the coming weeks.