View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Technology
March 1, 1999


By CBR Staff Writer

As if European AS/400 users didn’t have enough to worry about with the double whammy of millennium bugs and the new euro currency, IBM is continuing its long practice of charging AS/400 customers in Europe a heavy premium for machinery compared to the prices that it charges its North American customers. If IBM had been importing AS/400s from its main plant in Rochester, Minnesota to various European countries, then perhaps the premiums (which go as high as 21% above US prices) would be justified because IBM would have to pay import duties and value- added taxes on those imports. But seeing as though IBM actually makes AS/400s for the European market in its factory outside of Milan (and always has) and trade barriers are pretty much gone these days and currency fluctuations have been dampened by the introduction of the euro, IBM’s age-old practice of charging European customers more for AS/400 equipment seems outdated. The practice is also ironic given IBM’s best selling point – that it covers the world equally unlike any other computer vendor – and given the fact that the AS/400 was designed from the start to be a cross-national computer. It has power supplies that support both European and US volts and amps. IBM’s overcharging habit in Europe is one of necessity to prop up its books – once you start this, you have to keep doing it, just like discounting – but it is also a common practice that most US-based computer vendors who sell in large volumes in Europe undertake, as do EC-based vendors who charge as much as they can to meet IBM for the same capitalistic reasons. Used AS/400 equipment has always had a premium price tag on it, too. Nonetheless, a more forward thinking IBM would see that this disparate pricing practice is counterproductive in a market where its AS/400 division could be eating market share by charging a fair price to Europeans – meaning as low as it charges for North American customers. But IBM is an organization bound by its history and its inertia – some would say just like its customers – and odds are IBM will not change its mind about European pricing any time soon, unless customers are aware of it and demand that IBM change. IBM has dropped AS/400 prices in Europe relative to the States when it has had to do so for competitive reasons. In the early 1990s, AS/400 customers in Europe paid a 20% to 25% premium on most new and used AS/400 equipment. But low-end B and C models, appropriate for the typically smaller businesses inside a single European country, were priced much more aggressively, between 5% and 13% lower than US prices. During the D generation of AS/400s (1991), premiums ranged from 4% to 11%, and during the E generation (1992), when Europe was in the midst of a recession and IBM was trying desperately to fix itself as the mainframe business was imploding, European price premiums dropped to 4% to 9%, with 5% being typical. By 1993, with the economy picking up worldwide, IBM announced the F series. Price premiums on low-end Fs ranged from 15% to 26%, while premiums on larger F models (F50 through F95) were a more modest 11% to 15%. IBM cut big F buyers more slack not out of the goodness of its corporate heart, but because big F customers were aware of the price differential between the US and Europe and because AS/400 resellers, ever eager to chase big ticket deals, wanted to sell big iron overseas and would cut the split the difference with buyers who went with them instead of IBM on big acquisitions. It’s important to realize that at this time, premiums on memory, disk and peripherals were even higher. Premiums on disk drives were as high as 60% to 80%, memory cards were typically 23% to 30% more expensive. The one big exception was the 9337 external RAID 5 disk array, which was 14% to 20% cheaper in Europe than in the US. In the mid-1990s, as the value of the dollar grew weaker (which would tend to increase the price disparities between the US and Europe), IBM actually closed the gap on purpose, again to keep AS/400 machinery from jumping across the Pond. The premiums on the 2XX/3XX CISC AS/400s and on the 4XX/5XX RISC AS/400s were generally around 15%, with some exceptions for cheaper and more expensive machines. Disk prices in Europe continued to be high (a 40% higher list price on recent subsystems and raw disk drives), while memory prices were set at a 14% or 20% (cheaper on new machines, more expensive on older ones). With the Apache AS/400e machines announced in August 1997, the low-end model 150 Advanced Entry server was actually 25% cheaper in Europe – IBM refers to the 150 as a multiples and Italy box, a reference to its popularity among multinationals with small offices distributed around the world and among the Italian home market, which is the largest (in terms of installed base) piece of the European AS/400 business for IBM. This machine is still available, and it is still aggressively priced. The low-end S10 and S20 Apache servers carried a small 2% to 8% premium in Europe, while bigger S20, S30 and S40 Apaches and Northstars (announced late last year) had a 12% to 19% premium. Prices for Apache and Northstar 6XX models – which can run green screen applications at full tilt – were in roughly the same premium range in Europe, too. And even with the just-announced refreshed Northstar 170 and 7XX lines, IBM is still giving European customers higher prices. For the smallest 170 Invader, the current premium is 21%, and ranges from 15% to 19% on the other six 170 models. The typical premium on the 7XX models is 17% or 18%, with only a few models having lower premiums. These premiums may not seem all that high, but they add up to big euros. The premium on a low-end 170 is about 800 pound to 12,000 pound model 170s, IBM’s Compaq killers. That premium is roughly the same price of a low-end Compaq server. Yes, the AS/400 has lower cost of ownership and free systems software, but the sticker shock is enough to kill AS/400 deals before they even get started. Ditto for midrange 7XX models, which are going to be the main platforms in the AS/400 line for ERP and e-business applications for all of 1999 and probably early 2000. Premiums range from 12,000 pounds to 120,000 pounds on base AS/400e machines that should cost only 70,000 pounds to 700,000 pounds if they were priced at US rates. European AS/400 customers buying machines this year, knowing these price disparities, have IBM over a barrel – IBM’s AS/400 sales dropped significantly at the end of last year, and IBM is scrambling to pick up the pace as Y2K projects command more and more of IT budgets – and should absolutely demand to pay US rather than EC prices for their equipment. And then get a typical minimum 15% discount off that price, which US customers get as well. That’s what is fair, after all. á

Websites in our network
Select and enter your corporate email address Tech Monitor's research, insight and analysis examines the frontiers of digital transformation to help tech leaders navigate the future. Our Changelog newsletter delivers our best work to your inbox every week.
  • CIO
  • CTO
  • CISO
  • CSO
  • CFO
  • CDO
  • CEO
  • Architect Founder
  • MD
  • Director
  • Manager
  • Other
Visit our privacy policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.