Where Is The Power Systems-IBM i Stimulus Package?
April 13, 2020 Timothy Prickett Morgan
The governments of the world are spending to try to compensate for the economic slowdown in the wake of the coronavirus pandemic, which is the right thing to do. We wonder why IBM has not done more to help its Power Systems business.
Just before the coronavirus pandemic really started to kick in throughout Europe and the United States, and as the Power9 family of Power Systems machines was entering the long tail part of its sales cycle, IBM announced a deal in Europe that gave customers buying its so-called scale out (what we would call entry) one-socket and two-socket systems some rebates, ranging from $1,500 to $3,000, if they bought a new machine before June 30. This is great for Europe and the island territories of European nations, but the deal is not available in the United States, Canada, Japan, or other countries in Asia as far as we know.
The only other important change was actually a price increase for Software Maintenance for the IBM i stack that was previewed in a rudimentary form on February 28, which we covered here, and finalized in an announcement on March 30, which we covered last week. That price change took effect on April 1 – no joke – and as far as we know, Big Blue has not backed off on the price increase or pushed out the effective date to try to cushion the blow for anyone.
As far as we know, IBM does not have any special deals or special bundles or anything to try to not only stimulate sales, but help Power Systems customers out specifically during this difficult time. That is going to need to change, and it is going to be particularly difficult when Big Blue just spent $34 billion acquiring Red Hat. At least that deal stopped IBM from doing share buybacks, which should have happened a long, long time ago.
We have no idea how many programmers, system administrators, and IT managers have been laid off or furloughed in the IBM i base, but we suspect at least a good portion of the companies that employ IBM i systems in the United States are eligible for the Payroll Protection Plan provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by the U.S. Congress in March, allows companies to cover two and a half months of their payroll (with caps on salaries above $100,000) with a loan given through the Small Business Association and through their commercial bank. There are catches, and first of all, to do the loan you need to have 500 or fewer employees and you need a credit relationship of some sort with your bank. You also have to agree that 75 percent of the money that you are eligible to receive is spent on the actual payroll. We are not sure what other countries are doing, but hopefully something like this. The issue is getting the PPP money from the banks may take many months and companies have to keep paying people in the meantime. There is a serious jam up with the paperwork to distribute the $350 billion allocated to help small businesses cover their costs. If you obey the terms of the loan, the loan will be forgiven and covered by the U.S. government.
I don’t know about you, but I have never heard of any such thing ever from Uncle Sam in terms of such bold generosity. We think the PPP offer will help a lot of IBM i shops. According to the latest IBM i Marketplace survey from HelpSystems, 47 percent of the base who were polled for the 2020 report announced in January had 500 or fewer employees.
Even without the COVID-19 outbreak, IBM was going to have issues pushing Power Systems gear this year because Power9 machinery is basically a year and a half old already, and there is probably at least a year and a half to go before the Power10 servers are out.
There are two issues I see here. One is that capital is extremely scarce and companies are going to want to conserve whatever they have now and whatever they can generate in the coming months. The other issue is that credit is going to tighten for everyone just because of the sheer uncertainty of cash flow in the economies of the world at the moment. It seems obvious to me, then, that if IBM and its hardware reseller and software partners want to do deals, they are going to have to structure them so that Big Blue is basically the bank and shift to cloud-like daily, weekly, or monthly pricing for systems, systems software, and application software to lower the barrier to moving from customers. IBM can work with cloud providers to try to modernize workloads, but there are always data sovereignty and cultural issues that have to be taken into account. IBM i shops have had their own machines for decades, and for latency reasons where they run the factories and warehouses, they have to be close to the point of production and distribution. So the public cloud is not always the answer, even if cloud-like pricing is.
With customers on Power5, Power5+, Power6, and Power6+ machines being further back in all ways, they need to most help and encouragement to get current, so whatever deal IBM comes up with in conjunction with partners is going to have to be particularly generous. I think now is probably a good time for IBM and application software vendors to make the right gesture and either substantially reduce or completely do away with so-called “after license” charges, which are meant to extract the value of software upgrades from customers who didn’t pay software maintenance for many years and who want to move to modern releases. There has to be some give, and this is a big stumbling block. Software vendors are going to have to be generous in helping users customize applications as they skip generations to get current – no one is asking them to lose money, but we think it is wise to take a longer view than perhaps many companies have done in the past.
It is far better – and easier and cheaper – to keep a current customer than it is to find a new one, and this is especially true of IBM i customers. The next move many companies might be thinking of is a move to Microsoft Dynamics or Oracle Netsuite. And that is not going to help any of us in the IBM i ecosystem.
There are other things IBM can do. Now is probably a good time to cut costs on processor, memory, disk, and flash capacity. Maybe a 25 percent COVID-19 price break will be enough to help customers build up their existing systems, expanding them so they can run more partitions and do more useful stuff. Now is the time for the IT department to be stepping up and figuring out how to support employees remotely and make sure applications can extend out over the Web. We might be fighting this pandemic for a whole lot longer, and if not, we suspect that a lot of people won’t want to spend quite so much time commuting to the office any more.