The AS/400 has always been a multinational computer. From the very beginning, AS/400s both large and small could, for instance, use American or European electricity. That meant that a machine built in Rochester, Minnesota could run just as easily in the City of London as one built in Santa Palomba, Italy, where European customers are supposed to ultimately get their machines from. Because of the universality of hardware, software and support, it had sometimes been hard for IBM to charge anything but a modest premium for its AS/400 wares outside of its home market in the United States. Intrepid US-based dealers could just throw a machine on an airplane and have it to customers in a matter of hours, pay import duties and value added taxes and undercut the local prices. While the flow of equipment across the Atlantic has abated in recent years – mainly because IBM has such tight control over high-end AS/400 equipment and the accounts that might purchase it where the price disparities are biggest in its product line – such ‘pond hopping’ could very well start again with the Northstar generation of AS/400e machines, which began shipping to customers last week. The disparity between IBM US and IBM UK list prices for Northstar equipment is considerable. For the new eight-way and twelve-way servers, which use 262-megahertz Northstar chips, IBM UK is charging a 26% premium based on current dollar-pound exchange rates. The 650- 2188, eight-way system, for instance, costs $1.6m in the US, and 1.19m pounds in the UK. The prices include charges for OS/400 V4R3 and its integrated DB2/400 database, both of which come bundled.
Discounts
While no customer pays list price anymore – especially IBM customers, who are used to getting 15%, 25% or 35% discounts on servers these days – the price disparity is important because in every geographical region where IBM does business, the final sale price of equipment is reckoned off local IBM list prices, not IBM US list prices. So customers in the UK who negotiate like hell to get a 26% discount for their new Northstar processors are, in effect, paying full list price in the US. While charging a premium in Europe is no new practice – US-based computer manufacturers and software vendors have long since gouged their European customers, partly because support costs are high due to regional language and business practice differences, partly because it is a good way to increase profits. If all the companies selling computers in Europe plan their sales strategies on the local competitive environment and the fact that local buyers have no idea how much they are being overcharged for equipment compared to their US counterparts, then no one is the wiser – except all the computer vendors, of course. That’s why they all scream bloody murder when currencies fluctuate, as they have in Europe in the early 1990s and now in Asia. One little wiggle and there go all the profits. Of course, charging a price and getting it are two different things. Customers who know about the big price disparity for Northstar equipment in Europe are obviously a lot less likely to settle for higher prices. So here’s the details: The 26% price premium in the UK (and presumably across Europe since IBM Europe more or less keeps prices the same in the EC, if it can) holds for all the different flavors of the eight-way and twelve-way Northstars – 650 plain vanilla servers, S40 servers, and S40 and SB1 mixed-mode servers. Last August, when the Apache AS/400e machines were announced, UK list price premiums ran from 3% to 19% on the 6XX plain vanilla boxes, from 2% to 16% on the SXX servers and from 12% to 16% on the SXX mixed mode servers. With currency fluctuations, those levels have risen by 5%. Even still, the highest premium customers pay for Apache AS/400e machines is 22%, and the fact that IBM sought to charge an even higher 26% premium on high-end Northstar machines is, well, baffling. The only business this is going to stimulate is gray market trading in equipment earmarked for the US but ending up in EC data centers. For the new low-end model 170 Northstar Invaders, the price differences between the US and EC are a lot smaller, ranging from 15% to 23%. This is exactly in line with the premiums IBM is charging and has charged with Apache Invader machines first announced in February of this year. The other way of looking at this, of course, is that IBM has elevated prices in Europe to make it look like it is giving customers a lot more of a break there once it gives proportionally larger discounts than the typical US buyer is getting. There are so few Northstar deals out there right now that there is no way to tell, as yet, if such a positive spin on IBM’s pricing practices is justified.
