IBM Jacks Up Hardware Maintenance Fees
March 27, 2017 Timothy Prickett Morgan
It happens every couple of years or so, and in fact, it has not happened in a couple of years so it looks like we were about due. We are talking about maintenance price hikes on a slew of IBM hardware, price hikes that are aimed mostly at stemming the gradual decline in maintenance revenues that IBM’s Global Services unit is seeing as its base of hardware contracts. In theory, such a price increase boosts the profits of its services arm, but it also helps cover some of the inflationary costs associated with providing hardware support and housing parts of older gear.
While I am thinking about it, it would be nice if IBM actually allocated the hardware support revenues in its systems group where they belong. This would help to demonstrate the real revenue derived from hardware platforms, and to show that the Power Systems and System z platforms, looked at in their entirety and as the wholes that they are, are larger than many people might expect and moreover, have higher profits then they might expect. (I attempt to do that with IBM’s quarterly financial results, the most recent of which you can see here.) But IBM still thinks of itself in many ways as the services behemoth envisioned by former CEO and chairman Louis Gerstner two decades ago and not the systems company that it actually is.
Raising maintenance prices on older hardware has another good side effect for Big Blue: it gives the company an economic argument for convincing customers to move up to newer, more powerful hardware that will have a lower maintenance cost per unit of compute or storage or network capacity (or all three in the case of a system). Not every company actually pays for hardware maintenance services, just like many companies in the AIX and IBM i bases do not pay for Software Maintenance support contracts for their systems software stacks. (I think it is something on the order of 20 percent to 25 percent, in fact, which is a pretty low attachment rate for support but probably not out of whack with the industry.) So it is arguable how much of a motivational stick the price increase in hardware maintenance is for customers on older machines.
In any event, announcement letter 517-043 weighs in with 243 pages of machines and features that will soon have higher maintenance prices. I have put together a giant Excel spreadsheet, with more than 12,000 items, that shows the price increases for each machine model and feature number within that machine. The maintenance charge increases are for both annual and monthly maintenance fees and for contracts that have 9×5 business day and 24×7 continuous support contracts. You can download that price increase sheet here.
As far as I can tell, the maintenance price hikes on gear relevant to the AS/400, iSeries, System i, and Power Systems-IBM i platforms ranges from around 3 percent to 4 percent. The last time IBM did such a maintenance price hike was back in March 2011, which we reported on at the time. The prior maintenance charge hike came in March 2008, just as the Great Recession was gathering momentum. That maintenance price increase was around 5 percent for systems and between 5 percent and 9.5 percent on features within the system that carry their own charges separate from the base machine. IBM raised maintenance on selected iSeries machines by 17 to 19 percent in February 2006, when Global Services was getting hammered, and in April 2006, vintage AS/400 boxes had a 9 percent or so maintenance hike.
IBM usually announcements maintenance price changes in February or March, and they generally take effect in July of that year. The latest one was announced on February 21 (we didn’t see it because the announcement only went to partners for some reason) and the prices go up on July 1.