Driving System TCO With IBM Global Asset Recovery Services
September 9, 2020 Timothy Prickett Morgan
When economic times are uncertain, that means by necessity that IT budgets are also uncertain, and saying that IT is the core of the business and that software is eating the world does nothing to change these hard, cold, capital facts. And that is why in these times people often turn to used, refurbished, certified pre-owned, or even remanufactured IT equipment instead of trying to get the acquisition of a PC, laptop, a smartphone, a switch, a storage array, or a server by the bean counters in the accounting department.
This is no different than what many of us experience when we buy a car, where certified pre-owned is clearly better than buying from someone in the want ads and has many of the benefits of buying new without the cost. And when it comes to IBM’s systems, there is one organization in particular that can help customers get the right iron at the right price – particularly when buying shiny new gear is not possible or practical. That organization is called Global Asset Recovery Services and I had a talk with John Richards, vice president of this unit of IBM, about what this part of IBM does to try to match customers with the gear they need at a price they can afford and with terms they can live with.
Timothy Prickett Morgan: Give us give us a little bit about your background, John, to introduce you to our readers at IT Jungle.
John Richards: I have been in the IT business for over 30 years. I started my career in the services side of the business, and I spent fifteen years in desktop management services and field services. Early on, I worked in IBM to launch a standalone joint venture with 10,000 employees in North America called Technology Service Solutions, where I was the chief operating officer. And then I came back to IBM in various services and sales roles, and I spent almost ten years overseas where I ran sales in Australia and then Southeast Asia. I came back to the United States and was asked to run our reutilization business, and I had a little bit of experience with this along the way for a couple of years when I worked at IBM in North America. Now I’m the general manager of what we affectionately call IBM Global Asset Recovery Services, and I can’t think of a better place to be.
TPM: Tell me about the size and scope of that IBM’s Global Asset Recovery Services business, realizing that we focus on IBM Power Systems in The Four Hundred of course, but we want to understand the full breadth of the hardware that you sell.
John Richards: Let’s start with the core legacy of the business. We are a division of the leasing business, and as such, what we are really in charge of is the asset distribution of the residual values in leasing. IBM has been in this business for about 30 years or so. We started in this disposition business, and then we have extended that business and all those products to handle the IBM internal assets, both on an inbound side – meaning coming to us – and we also furnish a lot of infrastructure to IBM Global Technology Services, which is our outsourcing business. We run the scope of products from A to Z. Our core competency, of course, is in the IBM family, specifically IBM Power Systems, but we do IBM Z and also IBM Storage. The portfolio also includes X86 servers, PCs, laptops and selected mobile phones.
TPM: How much of what IBM Global Asset Recovery Services does is datacenter class stuff? Qualify and quantify that as you can, in terms of assets under management. I presume that Global Asset Recovery Services has got to be one of the biggest players left that has a portfolio of Power Systems and IBM Z iron. I knew a lot of companies that played in this midrange and mainframe space decades ago, but they are all gone.
John Richards: Our parent group is IBM Global Financing and their portfolio is in the billions of dollars, including datacenter gear and field gear as well. Around 400 of the top 500 enterprise customers at IBM are on some kind of an annuity-based technology platform. They are taking either a straight payment lease or a fair market value lease, which includes the return at the end of the lease. The inventory that IBM Global Asset Recovery Services handles on any given day is between $150 million to $200 million, inventory that we turn in various places around the globe. We operate directly in 35 countries and also through a broker network that is even bigger than that. I would say that we are the biggest IBM gear handler in new markets for sure, and we have a significant footprint in the Intel servers, PCs, and other gear.
TPM: Among other things, IBM Global Asset Recovery Services sells certified pre-owned, or CPO, equipment, which is different from the secondhand or used equipment and the new equipment that tracked for decades in the early life of The Four Hundred. What are these distinctions, and why do they matter?
John Richards: There is gear in the market that is used, what you called secondhand gear. There are IT brokers that will buy and sell these systems and peripherals, and they are generally sold on an as-is basis maybe for customers that need a couple of features – disk drives or memory cards, that sort of thing. But with such gear, there is always the issue of testing and certification, and of making sure that you are actually getting authentic IBM parts that are certified for maintenance. We have a way to find out if anything that came in from the black market – for instance, someone changing memory parts or something like that – and we can figure those out during our remanufacturing process.
TPM: Fake memory happens – I have written about this in the past.
John Richards: Definitely. And we’ve seen it. And when we harvest it, we research it — all the way from the labeling to every aspect of it that is cloned. But if we run these parts through Global Asset Recovery Services, we know the original parts and we can certify the reliability and authenticity of the parts and test them, and moreover, give customers the piece of mind that there is no malware in any of the gear – concerns that may not be properly met in the open market.
If you want IBM maintenance – our Certified Pre-Owned equipment is eligible for IBM maintenance, so we can provide that. When you buy a box from us, it comes with a limited warranty, but we can bundle maintenance up as well. We work with third party maintainers, too, and we even do parts with the third party players. We also supply those same brokers, because there is a parts availability issue. We generally have stock.
And we have another unique difference in our approach. We have manufacturing as well. We call it remanufacturing, but the only reason it is remanufacturing is because some of the parts in machines are pre-owned. We bring this gear through the same testing, with the same quality control, that we have with the new system lines. All of the test scripts, all the build mechanics, are the same and the parts rev levels are checked to make sure they don’t have any defects. And then we fully test them, exercising them, just as we would a whole new machine. In the case of a storage device, especially one in the datacenter, that could be maybe ten days of testing that we do through various means. So, they are really fully certified like new.
Moreover, we have full configuration capability. As you know, a lot of times these IBM Power Systems or IBM Z machines are built to order, with specific processor and memory configurations and specific features. Build to order is not readily available in the used market – you get what they got. We may take a base machine that came back off lease and add new or used parts to it, for instance. So, one, they can match their existing environment, and two, they can build it for the workloads they are running on.
TPM: I did a profile of the equivalent remanufactured Hewlett Packard ProLiant equivalent of Global Asset Recovery Services some time back, and they had a tremendous amount of machinery because there was so many machines flying around for trade shows, trials, and prototypes as well as a lot of customers that simply bought too much stuff and sent some of it back. Once a machine comes out of the box, it can’t be sold as new again, unless it is broken down and sent through that process again – and even then, it is called “renew” instead of “new” to distinguish the two. I don’t know if IBM with Power Systems and IBM Z has that same level of machine volume, but I suspect not.
John Richards: I think you’re right there because these IBM systems are more fit for purpose as opposed to scale out commodity gear. But the same phenomenon exists for us to a certain extent.
So, what are our use cases? First of all, people need “swing machines” or migration machines – things that have temporary uses. For example, when a datacenter moves and it needs a temporary third box. This is a perfect use of a certified pre-owned device. The other thing that is really very useful is disaster recovery. In that case, it’s not a temporary machine, but customers need the insurance policy of a disaster recovery machine and they need it at a very affordable cost. Either with an N level or N-1 level machine, or if shove really comes to push, an N-2 level machine that is two generations behind current to get that affordable cost structure.
The other scenario we see has to do with application software. If there is a lot of software that doesn’t run on or has not been certified on the current N level, then customers that need a down level for their applications or the operating system or both can have us get them a secondary machine that meets their specs. We get a lot of use cases for that.
Finally, some of our customers have a green policy and they like it when you take something out when you put something in. And of course, when you have the flexibility in place in the used machine, you can do a buyback as well. Say they need to move from N-2 to N-1. We have a home for the older machine and can find the more recent machine to meet their needs.
And we’ve got sales regions in every continent and we’ve got a team of a couple hundred people around the world that sell our Certified Pre-Owned machines inside the IBM sales umbrella. We have coverage.
TPM: How has the business been affected by COVID-19?
John Richards: It’s interesting, and we have to look a bit at macro-level economics.
For PC resales – both desktops and laptops – the prices actually have increased. And that is just a pure supply-demand statement. There isn’t a lot of supply for PCs and there are a lot more companies with employees working from home and that has tipped the scales. Early on when the pandemic first broke out, quite frankly, we were sold out of PCs. We could not get enough supply to meet demand. And then on the back side of that, the leasing customers are keeping the PCs longer. So, there’s less supply. The prices are up and we are active in the market, buying to meet demand.
On the server infrastructure side, it’s more of a mixed bag. Two things I think are happening right now. One factor is cost – there are capital constraints and sometimes customers have to manage within contingency budgets so the company is not overextended on capital spending. So, we are seeing customers look at used gear, a mixed of new and used components, blended so the client can still get the level of technology they need but at a better price point. I don’t think we have seen that phenomenon in the past.
And then there are the big projects – let’s call them the transformation projects with lots of capital for infrastructure – there’s an overall delay in these things. They’re not happening as fast as they usually have.
But in conjunction with the other factors, the Global Asset Recovery Services business really hasn’t seen any impact whatsoever. There are some increases and some delays. But we’re fine. And quite honestly, if you asked me back in March, I would have said we will survive just fine because we have the kind of economic value proposition that resonates in these times.
TPM: I assume that the prices have risen somewhat for servers because there’s also more demand and less supply because people are holding onto their servers and maybe extending their leases to eliminate risk, and because they don’t want to change anything right now because they can’t even get into their datacenters in some cases.
John Richards: That’s funny how you mentioned that physical thing first. They just cannot get to the datacenter, so things are staying in place. That’s absolutely true. And in the case of adding servers, maybe it’s an extension of the current architectures, etc. So here the demand is actually pretty good. In the case of IBM Power Systems specifically, it won’t be a talk about refreshing to a Power9 base, it will be an extension of an existing Power8 base. For all of the scale out versions of servers, be it IBM Power Systems or X86 machines, all of those are in demand.
TPM: Who are the typical customers for Certified Pre-Owned equipment? What is driving them to you?
John Richards: Let’s talk broadly. Some customers are constantly upgrading because IT is core to their business and it is X percent of the revenue generated and they just spend it and pride themselves on being premiere IT shops. We are maybe in 10 percent of those opportunities and for them, we are a provider capable of one-off deals for special cases.
Then you go into other sectors of the economy or other types of businesses and they are more cost constrained. Think companies in the distribution, travel, entertainment, and retail businesses right now. It’s a matter of getting more for less. They look to used gear first, they go to third party maintenance, and we provide some of our leasing options.
The thing to remember with our Global Asset Recovery Services is that we have a unique credit scenario with our used equipment. I’m affiliated with, IBM Global Financing – IBM’s financing division. Our product is kind of “sunk” in that it is in the inventory – it is already there in the warehouse. So we’re much more liberal in our credit terms for those customers that need credit or need payment plans with our used gear than with making an investment in new gear – whatever brand it may be. So, there’s a huge advantage in credit terms for those who need it. And from a capex perspective, the N-1 Power Systems gear might be something like 20 percent to 25 percent of list price – it is radically discounted. And the N-2 Power Systems machine might be 10 percent of list price. This is tremendous, and you will counter that some of that savings will still have to be spent on maintenance. But they do the math and they manage it, and this allows customers to get to technology levels and do things they just can’t do at all otherwise. We resonate very well with such customers.
IBM sells a lot of new gear, to be sure, but we are changing our business model to be an alternative in those situations where customers just can’t close the deal because the capital expenses are too large. We’re even providing our end-clients and business partners with the ability to buy IBM Certified Pre-Owned servers, storage, parts and features direct from our website.
Take SAP HANA as an example. It is a big workload, and a big job migrating the database – some would say it is a core workload. With Power8 systems and very low cost memory at our price points, you can get quite an impressive solution for a very affordable price against an equivalent X86 server. Just incredible TCO.
TPM: And we will be talking about that TCO story in details in the next feature in this series. So, stay tuned.
This content is sponsored by IBM.